The idea of the perpetual traveler is possibly centuries old. In the modern world, however, its meaning has somewhat solidified. The perpetual traveler is generally a high-earning individual such as an entrepreneur or seed investor who finds it more profitable and acceptable to not be locked down in a single country. Perpetual travelers, more often than not, have more than two countries they︀ are familiar with.Building upon this, Harry D. Schultz proposed the Three Flags Theory – essentially a philosophy detailing that you are more likely to save on taxes and live︁ better if you have a second passport and an address in a tax haven, apart︂ from the primary country of residence.
This idea was then picked up by numerous others︃ and popularized in no time. Why? Because it works. Soon, the idea expanded to the︄ Five Flags theory, adding two more flags, or countries, to have in your collection.
The core idea behind the Flag theory is to maximize freedom, reduce taxes, and improve your︅ lifestyle by leveraging geography and law. The world is huge, with possibilities unlimited. If you︆ are not capitalizing on the different opportunities that different parts of the world provide, you︇ are missing out.
The only fair exceptions are when you are locked down in a︈ place due to personal reasons (can be family, job, personal finances, or something else) or︉ when you are simply unable to travel (can be due to disabilities, travel bans, or︊ the fear of dropping dead mid-air).
If you are a high-earner and not really free︋ simply because the whole idea sounds far too adventurous or risky, then let us rest︌ your mind at ease. By the time you finish with this piece, you are going︍ to feel a lot safer in actually trying it out. Take it slow, one step︎ at a time, and you will be on your way to become the true nomad!️
Five Flags theory – here’s what it means
The Five Flags theory cements the perpetual travel idea and clarifies precisely how you can keep more of your hard-earned money while objectively improving your life – all by being open to discovering new lands and as a bonus, collecting new experiences.Here are the five flags, or places, you should have under your belt to avoid excessive interference (including taxes and surveillance) while protecting your privacy better:
Citizenship Flag:
The primary passport country. It shall not tax your income outside the country. If your current one does, now is the time to leave it and choose︀ a more forgiving country as your primary passport/citizenship nation. Even if it doesn’t tax your︁ external income but controls your life or wealth in excruciating ways, you guessed it, time︂ to pack your bags. The key distinction between the citizenship country and your country of︃ original residence is just that, so there’s no need to move out if you are︄ already in a financially-conducive nation.- Choose a respected, neutral, visa-free travel country that doesn’t tax︅ the non-resident and allows multiple citizenships.
- Good examples: Canada, most Caribbean countries, and most European︆ countries.
Legal Residence Flag:
Your legal residence has to be in a tax haven. This︇ allows you to save money, quite simply. The legal residence is a formality, you will︈ not really live here.- This is the address you will give everywhere, such as when︉ checking into hotels.
- Some good tax havens include Andorra, Monaco, Belize, Malaysia, and some Latin︊ American countries.
Business Flag:
This is the business country. This is where you will do︋ business and earn money. If your work does not require you to be physically present︌ at all times, then you have a lot of options here.- Choose a country with︍ remarkably low corporate tax rates.
- You can also choose to run more than one business︎ in different countries, or do your business completely online.
- Note that the companies you own️ will be tied to the asset country (next flag), thus you won’t be paying personal taxes.
- Dozens of countries have a low corporate tax rate, notable among which are Hungary, the UK, Turkey, Israel, Finland, Spain, Belgium, and the US.
Asset Flag:
Fourth on the list is your asset haven. Much like a tax haven that protects you from the ravages of taxation, the asset haven protects your assets from many threats. This is where you will essentially “keep” your money. The asset haven is a country with low taxes on both, long-term capital gains (like stocks, bonds, and property) and passive income streams.- Ideally, you would diversify your money and invest in different asset classes in this country.
- You can also invest in borderless alternative assets such as DeFi protocols or digital assets such︀ as cryptocurrencies and NFTs.
- The asset haven might require you to set up a base,︁ such as fund managers, trusts, foundations, and so on to better manage and track your︂ money.
- Financially stable countries such as Panama, Singapore, and Switzerland are great asset countries.
Recreational Flag:
The recreational country, also known as the playgrounds, is the country where you will︃ spend your money (and the majority of your time). What, were you thinking that this︄ theory was an all-work and no-play ancient philosophy?Note that this is one flag where︅ your personal preferences take priority. Sure, Japan’s consumption tax is significantly low, but if you︆ want to spend your money seeing Greek architecture then by all means choose Greece. By︇ leveraging the other five flags correctly, you will be making enough to pay 1-5% more︈ on consumption.
- The best part about the playgrounds is that they can keep changing, or︉ be more than one at the same time. If you don’t like to settle, in︊ the true spirit of the perpetual traveler, we would recommend a traveling playground.
- The preference︋ here is completely yours. Geographical or cultural features, amenities, types of lifestyle, etc. can influence︌ what country you make your playing ground.
- Ideally, you want to spend your money in︍ countries with low goods and services tax rates. Among the OECD countries, the countries with︎ the lowest consumption taxes are Switzerland, the US, New Zealand, Luxembourg, Korea, Japan, Canada, and️ Australia.
Wrapping up
The story of offshore companies, multiple passports, digital banking, and alternative assets for tax avoidance, more freedom, better privacy, and more fun is indeed lucrative. Sort of only requires guns to transform into a James Bond movie.But there are dangers, risks, and pitfalls hardly anyone pays attention to. To be a true nomad, a true perpetual traveler, and to use the Five Flags theory correctly, you have to first learn it all the hard way.
Thankfully, we are here to make that learning curve a bit smoother.
