The illustration below is an example of a situation in which the owner of an international trading business may wish to register a company offshore in order to maximise profits by taking advantage of lower taxes.
In an international trading operation, the business buys goods from a supplier in one country and sells them to customers in another country. For example, it may buy toys from China and sell them in Italy, while the business owner lives in a third country. When a businessman identifies an international trading opportunity such as this and decides to pursue it, he will typically register a company in his country of residence and conduct the business through that.
Let us assume that the cost of a particular toy from China is $5 and the business manages to sell it in Italy for $35. This generates a profit of $30. The company will then pay tax on this profit at the applicable rate of tax, which could be anything up to 30% or even more. If the tax rate is say 30%, then the company will pay $9 in tax and be left with a net profit of $21.
This is a typical situation in which it makes sense to register a company in an offshore jurisdiction, as this can result in substantial tax savings.