Do you like the country you live in? Have you imagined living in another country? What about investing in another country?

On this week's show we discuss a lifestyle that many imagine... and only a few really live. The life of an expat, living overseas, making money while you travel, and offshore investing. I really enjoyed this interview with Mikkel Thorup. He is a seasoned traveler and teaches others about how they can live this lifestyle as well. 

The Flag Theory: A Flagship of Financial Libertarianism

by Mikkel Thorup, EscapeArtist.com

People want more freedom today; not just the privileges to work or to express their political opinions, but financial freedom where they can choose how they pay taxes and protect their assets. 

Growing political and economic instability in many countries have made people lose faith in their governments and question if paying all the heavy taxes on their hard-earned money is even worth it; if being linked to national identities makes sense in the world that’s so connected and if the government’s control on their lives is fair. 

The flag theory is what has emerged as a result of these questions about one’s liberties. 

A Quick Look Into When It Started

The concept was introduced by Harry Shultz, an American investment advisor in the 1980s. Shultz endorsed the idea of having a second passport, of having residency in a tax-free country and introduced the world to asset protection strategies. The concept has gained popularity recently as more people want to structure their lives to get tax advantages in different countries. 

What’s The Flag Theory? 

The flag theory is an internationalization strategy that’s achieved by planting different flags in countries that best favor your situation. It helps you minimize your tax obligations to the government and maximize your privacy so you get more personal freedom. 

The idea is to base different aspects of your life in different countries in a way that you don’t become a resident in your country of birth and hence you’re not liable to pay taxes that other residents are entitled to pay. It’s a great way to protect yourself, your family, and your assets from shaky economies and precarious political conditions in your home country. 

There are a number of ways you can become a flag theorist, of which a few are listed below.

Obtain a Second Passport

There are contrasting opinions about having a second passport. Some people think it’s illegal and unethical; some think there are no additional benefits of having a second passport. Let me tell you that both these notions are wrong and based on assumptions. 

If your country allows dual citizenship, getting a second passport is legal. If you’re a perpetual traveller, having two passports means you can access a number of countries without a visa or with a visa on arrival. It also broadens your options for work permits. For example, if you get your second citizenship in a European country, it becomes very easy for you to get a work permit almost anywhere in Europe. 

Becoming a Resident in a Low or No Tax-country

Most countries have a residential tax system; which means you’re taxed on your income generated within the country. Some countries have 183-day rule under which, if you live in a country for half the year, you’re entitled to pay the taxes as a resident. So if you don’t want to pay the resident taxes, you can manage it by following the 183-day rule. 

If you’re a U.S. national—irrespective of where you work or reside—you’re liable to pay taxes on your worldwide income until you hold the U.S. passport. One way to get some tax relief is by applying for Foreign-Earned Income Exclusion if you’re a legal resident in another country.

Some countries that levy no or low taxes on their resident include Qatar, Hong Kong, Cayman Islands, the British Virgin Islands, and the Bahamas. 

Panama doesn’t levy taxes on your foreign-sourced income. You can become a resident of Panama through its Friendly Nations Visa Program, which is one of the simplest and easiest ways to obtain a second residency.  

Malta is a good option for people who want to base themselves in Europe but want to spend maximum time travelling because it doesn’t tax its residents on the worldwide income. 

Incorporate Your Company in an Offshore Tax Haven

Some countries are considered tax havens for businesses because they have minimum barriers and low tax liability for incorporating businesses. These countries don’t require the business owners to reside or do business in the country of incorporation. Some of the leading companies like Apple, Microsoft, and General Electric have their subsidiaries in offshore locations. 

According to a study, 73% of Fortune 500 companies use offshoring strategies for tax purposes. 

When your company is incorporated in a tax haven country, you’re not taxed on the income generated outside the country. If you’re a traveller and run an online business, you need a base to register your business and a tax haven is the best place to do it. You can operate from anywhere in the world and pay no taxes on your income. 

The Netherlands is the most popular tax haven among the Fortune 500 companies. The Cayman Islands levy no taxes on income, payroll, capital gains, and corporate taxes on foreign-sourced income. Countries like Belize, Bermuda, and the UAE also offer a number of tax benefits to offshore companies. 

Keep Your Assets in Secure Jurisdictions

Secure jurisdictions mean countries that have stable economies and politics and are renowned for their banking systems. These countries are the best places to protect your assets because it’s highly unlikely that such countries will run into a financial crisis and confiscate the assets of its residents. It’s also recommended to keep your assets it in different countries to minimize the risk against inflation and political unrest. 

Countries that have good banking systems have strong privacy laws for offshore accounts that inhibit banks from revealing information about their clients without their consent; so no one but you has access to your accounts. 

While some countries can be excellent for protecting your digital assets, their weak cybersecurity can be a bad option for your digital assets. Digital assets include the patents of your company, your company website, and photographs. Countries like Norway and Iceland have excellent data security laws that protect digital assets from theft. 

Invest in Real Estate in a Low Property-tax Country

While you travel the world, there are some places that you fall in love with and wish to keep returning or where you see your future once you’re ready to settle down. Investing in property is a great way to prepare for it to build your base in that country. Invest in real estate in countries that have low tax on property like Chile, Fiji, Georgia, and the Cayman Islands. 

About The Author

Mikkel Thorup is the Director at EscapeArtist.com the oldest and largest offshore website in the world and hosts The Expat Money Show podcast. He is also the author of #1 Best-Selling book Expat Secrets on Amazon. Mikkel has spent over 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran. His goal is to help people just like you to generate additional streams of income, legally eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again. Follow Mikkel Thorup on Twitter @ThorupMikkel