Utilizing Flag Theory to become a perpetual traveler can be a good way to minimize government interference and taxes while maximizing freedom. In fact, technology has made flag theory for digital nomads even more accessible.
What is Flag Theory and Perpetual Travel?
Flag Theory, also known as perpetual travel, is a concept that was initially created in the 1960s by Harry Schultz. His goal was to help individuals keep their money and maximize their personal freedoms. He implied that since every country is different and has its unique advantages, it would make sense to live across several jurisdictions to maximize these benefits.
In other words, he recommended internationalizing different aspects of your life to gain from things like better tax laws or more advantageous banking systems.
A perpetual traveler is someone who utilizes flag theory by consistently traveling and minimizing their time spent in any one place so that they can reduce taxes, avoid certain civic duties, and increase personal freedoms. By living in this manner, perpetual travelers essentially lack a permanent residency and can create a free way of living.
Technology has made working from anywhere more and more reasonable, and the recently coined term digital nomad is similar. These digital nomads use technology to work remotely in foreign countries, and this can be combined with flag theory to maximize your freedom.
Flag theory recommends placing five different flags, or areas of your life, each in a different country that has the best benefit for that specific flag:
- Passport and Citizenship – in a country that does not tax foreign income or control actions
- Legal Residence – in a tax haven
- Business Base – in a country with low corporate tax rates
- Banking Base – in a country with low capital gains and passive income tax
- Physical Assets – a place where you can spend money that has low consumption taxes
How does it Work?
As you can see, becoming a perpetual traveler as based off of establishing different flags in different locations. Each flag has unique requirements and different considerations that need to be taken into account to ensure you are choosing the right location.
Flag 1: Passport and Citizenship
Choosing the country to keep your citizenship or permanent residency has a major effect on the other flags, so it is important to choose the right country. In addition, having a second passport is one of the most critical steps to reducing your sovereign risk and facilitating worldwide travel and mobility.
The country in which you hold your passport often has the rights to tax foreign income or control certain actions that you can or cannot take, so it is important to consider which country best suits your needs as far as citizenship is concerned.
Previously acquiring a second passport was very difficult and expensive, but now laws are changing to create more opportunities. In some countries, you can now gain citizenship by naturalization for just $5,000 and 3 years of a re-domiciliation process. For faster processing, an investment of $100,000 and a background check will do.
Flag 2: Legal Residence
The next flag to establish is legal residence. Since citizens are taxed when spending, earning income, and at their deaths, it is important to choose a legal residence in a country with the lowest tax rates. Tax avoidance is not a crime, and it is within your rights to pay only the amounts required by law.
This is an especially important flag for remote based companies and digital nomads. By choosing to incorporate internationally and offshore, most of the large companies in the US significantly reduce their tax rates and can even defer their taxes indefinitely.
Flag 3: Business Base
The flag associated with your business base is meant to protect your assets. Legal entities like companies and trusts are able to protect their wealth and save on taxes by establishing their business base offshore.
For a relatively small amount of money, often less than a few thousand dollars, a business entity can be created to house your assets and liabilities as well as to transact business in your name. It can also do things like open bank accounts and is an important tool to establish privacy and build wealth.
For remote-based companies, this flag is crucial to minimizing taxes and protecting assets. Since the business is remote to begin with, where the company is legally incorporated makes no difference to customers and employees.
Flag 4: Banking Base
The next flag deals with offshore banking and where you choose to store your money. Your wealth should be kept in a country in which you actually spend money, as well as in a place that has high levels of privacy and stability.
The country you choose should also have low capital gains and passive income taxes, as your goal should also be to grow your liquid wealth through investment and other financial tools.
Flag 5: Physical Assets
The last flag, physical assets, was originally called playgrounds. This flag relates to physical assets such as land and gold that require more planning, as they are more difficult to move and transfer. For these assets, you want them to be in a country with benefits but also in one that you can enjoy the lifestyle.
This flag may not be necessary for perpetual travelers, as they are highly mobile individuals and rather than planting a flag in one country, this can be anywhere that you enjoy spending time.
New Digital Flags
As technology continues to become more prevalent in every facet of our lives, two additional flags have been identified for perpetual travelers: digital security and digital assets. Digital security involves storing your digital documents in a country with strong privacy and data protection laws, while digital assets refers to storing digital currencies in countries that accept them and have strong security systems.
Benefits of Perpetual Travel
Flag theory for remote companies can be very beneficial. It provides a way for the business to minimize their tax liabilities while securing their assets and finding ways to grow their wealth. It can also increase their bottom line and open doors to new business and investment opportunities. In addition, it can provide more affordable sources of labor.
For perpetual travelers who work for remote based companies, it can have the same financial benefits while ensuring freedom and a diverse choice of lifestyle options. Essentially perpetual traveling can be beneficial to anyone who seeks to live freely while protecting their financial assets.
Things to Consider Before Becoming a Perpetual Traveler
Before becoming a perpetual traveler, there are several things to consider:
- What are the best places to incorporate globally as a digital nomad?
- In which countries can I acquire a second passport, and how can I go about doing so?
- What are my end goals as far as finances and lifestyle are concerned?
Once you have decided to become a perpetual traveler, you must start with leaving your passport country and becoming a non-resident. Next, you must acquire a new legal residency in a country without a foreign income tax, and then choose a third country for your offshore business.
After that, you need to move your assets offshore, and the country you choose will depend on what kind of assets you have and the rules from your home country. Finally, you can start traveling in tax-friendly countries that have a low cost of living but a high-quality lifestyle.