Flag theory is a dream that may seem too good to be true. However, strategies behind flag theory help you to live where you want, keeping your assets safe, maintaining the privacy and without any tax obligations. Thus, flag theory, in short, helps you to lead a life that has zero tax, secured assets, and unlimited freedom.
Let’s see in detail what exactly is Flag Theory.
Flag theory is simply an idea that encompasses the fact that “Go where you are treated the best.” Thus, every time you base a part of your life in a new country you plant a flag there. Flag theory has been there for a long time, but it has evolved from the three flag theory to five flag theory.
The 21st century has brought new dimensions to the original flag theory and its implementations. The sole motive of planting the flags in a different country is that no government has control over your money or you. It brings diversification to your financial and personal affairs.
Another aspect of flag theory is that person should be chained to a single government. On an average, most people are born in one country and spend their entire life there only. From education to work to retirement, everything happens in the same country. That means his whole finances are in the currency of that country alone.
In the earlier times it might sound good, but with the changing times, you need mobility and freedom for a free, abundant life. The above strategy will not let you soar high or have enough savings. Today you should be dreaming of staying a comfortable life in countries that average people can only dream of visiting.
To live an adventurous and prosperous life you have to learn the art of planting flags in different countries. Governments change and so does their policies and staying stuck in one state can be fatal. Flag theory safeguards you and your family from such instabilities. If you lead a life as per the flag theory, you live your life like a free bird, traveling with ease and peace to the core of your heart.
Why Should One Opt For Flag Theory?
Now, you must be wondering what’s in it for you? The answer is simple.
A perpetual traveler or permanent tourist or prior taxpayer or PT spends his time in many foreign countries in a year. Thus, a perpetual traveler lives his life with the concept of the five magical words, i.e., Go where you are treated the best.
This is what you get when you follow the flag theory. Let’s talk more about the original three flag theory.
Three Flag Theory (Earlier one)
Three flag theory was developed by Harry Schultz. It suggests you to plant three flags in your life, namely:
1. Be the resident of a country that doesn’t levy a tax on foreign source income:
Countries impose a tax on the citizens, including:
- Territorial tax: It means income earned out of the country where you do not live is not taxed. Residents of China can make money anywhere in the world and not pay tax in China. If a Chinese has a hotel in Singapore, he will not pay tax on the incomes earned from the hotel.
- Residential taxes: These are paid on the basis of the country where you live. Its the 183 days principles, which says if you have spent at least half of your time living in a country, you are taxed on the worldwide income.
The rules of different countries differ and you have to prove that you have no ties to the nation to disqualify yourself from paying the residential taxation.
It is complicated, but the results are worthy enough. If you successfully prove that you are no longer deemed resident you save yourself from paying taxes on your worldwide income.
- Citizenship based taxation: This states that no matter where you live you have to pay taxes of the country where you have citizenship this is levied by the United Kingdom and Eritrea.
2. Conduct business in stable tax havens:
Once you have a citizenship in a state where you tax is not imposed on non-resident income or you belong to the low fee or zero tax country, you can setup your business and make yourself free from paying taxes on the income earned. Countries like Hong Kong, Belize, Nevis, Seychelles are best countries to plant your flags since they don’t impose any tax on offshore corporations.
3. Live like a tourist in a country that presents more freedom:
Perpetual traveler or permanent travelers do not take formal residence in one place. Thus they are classified as tourists even if they spend three to six months each year in one place.
Now, let’s talk about the Five Flag Theory.
Five Flag Theory
The original three flag theory was modified by adding two flag planting strategies. W. G. Hill originated it. Let’s have a look at them.
- Passport or citizenship of the state which don’t impose tax on non-resident income or exercise control on your actions.
- Be a legal resident of a state that does not tax overseas income.
- Base your business and salary earning in a country that does not tax your income.
- Keep your bank account in a country that has stable banking laws to provide a safeguard to your assets.
- Shop from the places which impose less sales tax while living in other states which impose no tax on your income.
How tourists get benefits with Flag Theory
Tourists receive better treatment than the locals and dont have to pay sales tax or even get it refunded when they leave and are also not liable to pay local income tax. Thus by planting a flag in those countries which respect your way of earning, you can live a free life without paying any tax. There also the option of becoming second residences in individual states if you do not desire to become a perpetual traveler.
If you are through with the flag theory, you will have limitless opportunities around the world for flag planting. The more assets you have in different countries, the less control any government will have on you.
Flag planting improves your life. It makes you happier by taxing you less and presenting more opportunities to you from different parts of the world. Making smart decisions about the planting of flags is the key to master this art and to diversify your investments. Thus, plant your flag one at a time and enjoy the benefits of this life.