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If a firm has significant business in a third party jurisdiction it is often possible to reduce the overall tax position by transferring management and control to a more tax efficient area. For example, if a British firm purchased a given type of good in Italy for resale to the Middle East it would seem inappropriate, to say the least, that such a transaction should be subject to UK corporation tax. A potential solution would be to set up a company in a low tax area such as Cyprus to specifically control these transactions. If this is done correctly and does not offend the anti-avoidance provisions of the Taxes Act, 1988, it should be possible to benefit from for example the Cypriot corporate tax rate 10.00 %.
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Obviously, any remittances back to the UK may be subject to full UK taxes, however, those funds not so required should be available for investment elsewhere. In respect to Cyprus, the fact that it has an extensive double taxation treaty network, demands the submission of annual audited accounts and, in this example, is strategically placed, all goes to prove the commercial veracity of the establishment of the Cypriot company/office. Even better, in certain circumstances it may be possible to reduce the flat 10.00% tax rate by inserting an offshore limited partnership (this being tax free) with taxes only being paid on that ascribed proportion of profits earned by the Cypriot company in its capacity as the "general partner". The 'limited' and passive partners having no direct tax consequences. Therefore, if such are tax haven companies, this preventing direct fiscal remittance to the appropriate high tax 'mother' country, all profits earned by the passive partner(s) will be totally tax free
