The theory of the flag is the art and science of being a permanent traveler.
By Flag Theory we mean the idea that you should "go where they treat you better".
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 deals with the topic at this link .
Harry Schultz created the original three flag theory, which gives you advice on how to plant 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 is paying tax on your income only if you earn it from where you live. Income from other countries is excluded from local taxes. For example, Australian citizens can earn money from anywhere in the world without paying taxes in Australia. However, if they earn from their restaurant business in Germany, they will pay German taxes on their earnings from their retail establishment.
Residency-based taxation involves paying taxes where you live, regardless of where you earn your income. Many countries like Spain apply a version of the 183-day rule, which means you are liable to pay tax if you spend half of the year in this country. However, you do not pay tax if you spend less than 183 days in the country as you will not be considered a resident.
Nationality-based taxation involves paying taxes in your home country and wherever you live. This type of taxation is applicable only in two states: United States and Eritrea. The only thing you can do to avoid paying is to give up your nationality. This is one reason why second passports are so appealing, particularly to US citizens who pay taxes on their earnings from anywhere in the world. Meanwhile, in the case of Eritrea, the taxation is not very severe as they only charge 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 is not taxed based on your citizenship or you are a resident of a low or zero tax country, you can start businesses and pay no tax based on the income you earn. It is highly recommended to select a country that has a low tax burden, as the global community is putting more pressure on tax-free countries, which end up having to make several negative changes towards those who choose them to expatriate.
Despite this, you can avoid all the taxes you'd be forced to pay on the income you've earned if you're a perpetual traveler or if you live in a tax haven. This is possible in the following countries: Paraguay, Panama, British Virgin Islands, Cayman Islands, Hong Kong, Nevis and Seychelles. Non-national companies normally do not have to pay taxes in these mentioned countries. Sometimes they don't even do an annual audit or an accounting report. In view of this, flag theory is saving you a lot of precious time and money.
3. Live as a tourist in a low-cost country for more independence
The concept of the perpetual traveler is very evident here. Perpetual travelers are also known as "permanent tourists" since 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 most of Asia without a visa requirement. I am usually able to stay three to six months. FAQs