If your market is a country with high taxation and you buy your products internationally, the offshore company can be useful.
Let’s consider the example of an Importer
Take the country A that the corporate tax rate is 30 %.
The importer is installed in this country A and sells its imported goods in the local market.
The Importer purchases a product for 1 euro in country B. He has 1 extra euro in importation costs till country A and selling operation. The product therefore has a final cost of 2 euros.
He sells this product 10 euros on its local market in country A. He makes a profit of 8 euros per product.
He will pay a tax of 30% on the 8 euros of profits, that is 2.40 euros and have a net profit of 5.60 euros that could be distributed as a dividend (on which there is still a personal taxation).
Using an offshore company, the Importer still buys its product 1 euro in the country B. The offshore company then resells it at the price of 8 euros to his company in country A. To simplify, we keep the import fees and selling operation charges at 1 euro. Thus , the product has a final cost of 8 + 1 = 9 euros for the company in country A.
By reselling 10 euros, he will make a profit of 1 euro on which there will be a tax of 30%, that is 30 cents.
On the other hand, the offshore company will retain a benefit of 8-1 = 7 euros, on which no tax will apply.
Nota 1: If the importer sells 100,000 units of the product, equal to a 1 million euros of turnover,… make the calculation…
Nota 2: This is a simplistic example to highlight the concept. We have to adapt to each situation with regard to the purchase price, resale, level of taxation… The concept will be anyway still the same.
Nota 3: The same concept applies for the exporter, which produces/buys for 1 euro in his country with high taxation, and sells for 10 euros abroad.