Flag Theory is the art and science of being a permanent traveler.
Flag Theory is the idea that you should "go where you're treated best."
The goal is to diversify your personal and financial affairs so that no government has control over you or your money.
Every time you base part of your life in a new country, you plant a “flag” and diversify based on geography, finances, law, lifestyle, taxes, business, health, politics, investments, and more.
Wikipedia covers the topic at this link .
Harry Schultz created the original Three Flags Theory, which gives you advice on planting flags for only three specific parts of your life:
1. Be a resident of a country where foreign income is not taxed
There are three types of taxes that governments can impose on their citizens:
- territorial taxation;
- residential taxation;
- citizenship-based taxation.
Territorial taxation means paying taxes on your income only if you earn it from where you live. Income from other countries is exempt from local taxes. For example, Australian citizens can earn money from anywhere in the world without paying taxes in Australia. However, if they earn money from their restaurant business in Germany, they will pay German taxes on their earnings from their retail establishment.
Residency-based taxation means you pay taxes where you live, regardless of where you earn your income. Many countries, such as Spain, apply a version of the 183-day rule, meaning you pay taxes if you spend half the year in that country. However, you don't pay taxes if you spend less than 183 days in the country, as you won't be considered a resident.
Nationality-based taxation involves paying taxes in your country of origin and wherever you live. This type of taxation is applicable only in two countries: the United States and Eritrea. The only way to avoid paying it is to renounce your nationality. This is one of the reasons why second passports are so attractive, especially for US citizens who pay taxes on their earnings from anywhere in the world. Meanwhile, in the case of Eritrea, taxation is not very severe, as they only levy a 2% tax on the income of its citizens.
2. Keep your assets and businesses in safe and stable tax havens
Either your foreign income isn't taxed based on your citizenship, or you're a resident of a low- or zero-tax country. You can start a business and not pay any taxes on the income you earn. It's highly recommended to choose a low-tax country, as the global community is putting more pressure on tax-free countries, which end up having to make several negative changes for those who choose them as a place to expatriate.
Despite this, you can avoid all the taxes you would be forced to pay on your income if you're a perpetual traveler or live in a tax haven. This is possible in the following countries: Paraguay, Panama, the British Virgin Islands, the Cayman Islands, Hong Kong, Nevis, and the Seychelles. Non-domestic companies typically don't have to pay taxes in these countries. Sometimes they don't even have to submit an annual audit or accounting report. With this in mind, the flag theory can save you a lot of valuable time and money.
3. Live as a tourist in a low-cost country for greater independence
The concept of the perpetual traveler is very evident here. Perpetual travelers are also known as "permanent tourists" because they have no formal residence anywhere. They travel from one country to another as tourists, even if they spend three to six months a year in one country.
Passport holders from wealthy countries can easily enter most of the Americas, Europe, and much of Asia without a visa. They are usually able to stay for three to six months. FAQ