An offshore company is a perfect way of reducing taxes.

1:- In the following case study a UK based company ‘UK Importer Co’ (an electrical goods imported and re-seller) is buying 1,000 TVs at £100 each, directly from China and selling to consumers in the UK at £200 each, thus making a profit of £100,000.  The corporation tax on this would be 28% = £28,000

However the incorporation of an offshore company in Cyprus can reduce the corporation tax liability for the UK importer & re-seller.

2:-  The China supplier sends the invoice for £100,000 to the Cyprus Company.

3:-  The Cyprus company ‘re-sells’ the goods to UK Importer Co by issuing a sales invoice for £150,000 (£150 per item) and the goods are shipped direct from the China supplier to the UK importer.

4:-   The UK importer buys the 1,000 electrical goods at £150 each but sells them  at the original price of £200 so the profit for the UK Importer Co is reduced to £50,000.  The UK corporation tax = £14,000.  Cyprus Corporation tax is 10%, so the Cyprus corporation tax = £50,000 x 10%) = £5,000.

In this single transaction the tax burden was reduced from £28,000 to £21,000 creating a saving of £7,000

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