Example: Guernsey has several businesses that sell print cartridges and DVDs to the UK market (consumers only). This is because it's outside the EU (no VAT, they can undercut UK prices by 17.5%, and when they send things to UK it's duty-free under GBP18). The business is taxed on profits at 20%.

That business model doesn't work for selling to businesses (they don't care about the VAT savings) nor for items over the duty-free limit.

It also doesn't work too well if the majority of the control of the company is in another country (as it would then be considered resident there for tax purposes, in addition to Guernsey). So you can see why where you (or the majority of the shareholders) live is a key question.

If it's a business-to-business company or a consultancy offshore companies may have a few problems (some companies and especially governments are reluctant to deal with offshore entities). Consumers might be a bit cautious also but generally they're not aware of it.

Personally I think the Isle of Man is a good ecommerce base for online products marketed to English-speaking countries. Offshore but inside the EU customs boundary, 17.5% VAT, a current company tax rate of 10% (changing to zero% in 2006), personal tax rate 18% max, good communications including UK style phone numbers (easy for customers to call) etc.

Of course if you're mainly shipping physical products to mainly Americans it's a totally different thing, you'd really need an address (at least of a dropshipper) there.