How flag theory can set you free

Flags don’t mean much to a great many of us. They’re nothing more than artificial constructs, symbols of something that doesn’t exist. They give us a feeling of unity that is founded on our differences to others: inside, outside; for, against; friend, enemy.

Starting from today, flags might mean something more positive for those who don’t share these patriotic sentiments.

How would you like to live where you want, stop worrying about your assets and your privacy, and even avoid taxes forever?

Too good to be true?

Wrong – this could all come true if you practise the philosophy of the perpetual tourist, with a little help from flag theory.

But let’s start at the beginning.

Here you have a short video introduction by Christoph:

What is flag theory?

Flag theory is based on one simple, logical motto:

“Go where they treat you best.”

If more of us followed this message, the governments of the world would think twice before introducing measures at the expense of their citizens. However, as things stand, our States think about themselves (politicians, civil servants, bureaucrats, partners, and connections) before the rest, while their citizens simply look on patiently as they take a beating.

The method is simple:

“Plant flags around the world to diversify your assets and gain more options.”

In flag theory, the “flags” are the countries that offer the services you’re looking for and cover certain needs, in a way that fulfils your requirements and desires.

[Yes, in the modern world, we don’t choose countries out of patriotism or chance (i.e. birth), but see States for what they are: enormous companies with services to offer us.]
[bctt tweet=”We don’t choose countries out of patriotism – we see States for what they are, enormous companies with services to offer us ” username=””]

The question here is how to get organised personally and financially, so that none of the world’s governments have access to your possessions or endanger your way of life. Those of us, like you, who are looking for freedom in our lives, can anticipate these problems and avoid suffering the consequences of arbitrary governmental measures.

A rebellion against society and the system?

The idea of going where they treat you best probably clashes with everything you were taught growing up. Didn’t they always tell you…

1. … your country would take care of you?
2. … you’d live your whole life in the country you were born in?
3. … you’d go to school and maybe university in that same country?
4. … you’d work in the country you were born in?
5. … your best friends would be from that same country (or even neighbourhood)?
6. … you’d get married with someone from your country?
7. … you’d have all your bank accounts, savings, and shares there?
8. … you’d have all your money in the national currency?
9. … you’d buy real estate in your country?
10. … your valuables would be safe there?
11. … you could only have one country and one passport?

If you still think this, it might be time to switch gears; the real world is different.

Governments tax you incessantly, watch your every move, tell you how to raise your children, dictate where you invest your money, and constantly devalue and confiscate it. Even if you live in a good political and economic climate and think everything is fine, the situation could change overnight.

Remember that being tied down to a single place can be disadvantageous and even put your life at risk (or at least your current quality of life).

Any country could end up like Russia in the twenties, Germany in the thirties, China in the forties, Cuba in the fifties, Congo in the sixties, Vietnam in the seventies, Afghanistan in the eighties, Bosnia in the nineties, Argentina in the noughties, or Greece today.

Why should you make the most of flag theory?

Flag theory is a way of applying the philosophy of the perpetual tourist. However, it doesn’t require you to constantly be on the move.

There are many people who don’t want to lead a completely nomadic lifestyle, and that’s perfectly fine! Flag theory doesn’t obligate you to always be travelling. Instead of passing through 30 countries, you can choose your three favourites and enjoy them turn by turn.

Maybe you want to spend the cold months in the Caribbean or the southern hemisphere, spring and autumn in the Mediterranean and June to August somewhere in northern Europe or America.

You know by now: “Go where they treat you best.”

A perpetual tourist (PT for short) is a perpetual tourist who doesn’t pay taxes because they never spend more than 183 days in one place. Sound interesting? Then I’ll explain how flag theory works.

Below, I’ll set out three variations of flag theory that will show you the best way to organise your life on an international scale.

• Harry Schultz’s original three flags theory
• W.G. Hill’s five flags theory
• The Tax Free Today blog’s thirteen flags theory

The original three flags theory

The inventor of the theory, Harry Schultz, based his flags on three main poles:

1. Reside in a country where your foreign income isn’t taxed
2. Keep your companies and assets in safe and stable tax havens
3. Live as a tourist in a country that values what you do

Let’s study these three principles in more detail.

1. Reside in a country where your foreign income isn’t taxed

There are three kinds of taxes governments can impose on their citizens: territorial taxation, residence-based taxation, and nationality-based taxation.

Territorial taxation involves only taxing income from sources situated within the place you live. Income from other countries isn’t subject to local taxes. For example, Singaporean citizens can earn money anywhere in the world without paying taxes in Singapore, but if they have income from renting houses in Spain, they pay Spanish taxes on their earnings from their real estate.

Residence-based taxation (depending on the definition of residence) means paying taxes where you live. Many countries, including Spain, use a version of the 183 day principle to make paying taxes obligatory (we’ll talk in more depth about how this rule works and its consequences for Spanish citizens in another article).

If you spend over half the year in the country, your income earned on a global level is taxable there. But if you spend less than this period of time in the nation, you aren’t considered a resident, and therefore don’t have to pay taxes.

Nationality-based taxation. Luckily, this kind of taxation is very uncommon, and only applies to two States: the US and Eritrea.

Nationality-based taxation involves taxing your income in your country of origin, wherever you live. You can only avoid paying taxes by renouncing your nationality. This is why second passports are so attractive, especially for US citizens; they have to pay taxes on the income they earn anywhere in the world, in regular instalments, to the tax authorities of their country’s tax office, wherever they live.

Being born abroad to US parents, or in the US to foreign parents, can therefore quickly become a huge disadvantage.

In the case of Eritrea, a small war-torn country in East Africa, the tax situation isn’t so severe. Eritrea only taxes its citizens’ income at 2%, and in any case, it can hardly put its legislation into practice due to lack of resources.

2. Keep your companies and assets in safe and stable tax havens

If your foreign income isn’t taxed based on your nationality (i.e., if you’re not a US or Eritrean citizen), you can set up a company in a country with little to no taxation, where you therefore won’t be taxed.

It’s usually advisable to choose a country with a low tax burden, since the international community is putting more and more pressure on tax-free countries, which end up having to make various concessions.

In spite of this, if you live in a tax haven or as a perpetual tourist, you can avoid all the taxes you’d otherwise be forced to pay on the income you’ve earned by the sweat of your brow.

A few countries where this is possible include the Cayman Islands, the British Virgin Islands, Belize, Nevis, the Seychelles, and even Hong Kong. In these places, non-domestic companies don’t usually have to pay taxes. Sometimes they aren’t even required to draw up a yearly balance-sheet. In light of this, flag theory doesn’t only save you money; it also saves you a ton of precious time.

3.  Live as a tourist in a country that values what you do

This is where the philosophy of perpetual travelling comes into play. Perpetual tourists don’t have formal residence anywhere. They travel throughout the world as tourists, spending three to six months in each country.

If you have a Spanish passport, you can travel to the most attractive countries in Europe, America, and Asia, and spend between three and six months in each unhindered.

What’s more, remember that tourists are often treated better than locals. For instance, tourists are usually able to deduct the VAT from certain purchases when they leave a country, constituting another kind of tax they don’t have to pay.

For those who’d prefer to spend their whole time in one place rather than travel, there are various possibilities. There are many countries in Latin America, and some in Asia, where life is good and there are few obstacles to obtaining a permanent residence permit. Oh, and they don’t tax foreign income.

The next stage: five flags theory

So you can continue to diversify your life, let me introduce W.G. Hill’s five flags theory, which adds two more flags to the original concept.

1. Obtain a passport or nationality in a country that doesn’t tax your foreign income or control what you do

This aspect of flag theory remains unchanged, but clarifies that no State in the world should restrict your freedom of action. This brings us up against the example of US citizenship, which requires you to fulfil certain obligations, even if you live abroad. According to flag theory, the US passport is the worst you can have, due to its taxation of foreign income.

2. Reside in a tax haven

In contrast with the original flag theory, this point advises you to choose one place as a base from which you can manage your life without paying debts to any State. If you get a permanent residence permit in a country where foreign income isn’t taxed, or even where no income is taxed, you can live totally tax-free.

3. Set up your company headquarters (i.e., where you earn your money) in a tax haven

Register your offshore company in this country and receive your salary there. As with all tax havens, your income will never be taxed, or only will be occasionally. If you’re already following the first two principles of flag theory, neither your country of origin nor the State in which you usually reside will tax your income. Ideally, it should be a small, little-known country that doesn’t have the desire or the power to make things difficult for you.

4. Keep your assets in a safe place with no tax on capital

You may prefer to keep your assets in a different country to the one where your company is registered. At the end of the day, what you’re looking for here is a very stable country that can guarantee the safety of your assets with an effective legal system.

5. Choose your “playgrounds”, the places where you can enjoy life however you want; preferably somewhere without VAT

Even if you live in a tax-free country, you may have to pay a lot of VAT or other consumption taxes. For example, according to flag theory, Malaysia is a good choice for the first three flags, but since consumption tax (VAT) is high, it’s best to buy your things (CDs, clothes, petrol, alcohol, etc.) in another country where tax is lower.

The final stage: the Tax Free Today’s thirteen flags theory

Theoretically, you can create as many flags as you want. The more flags you have spread around the world, the less you’ll be affected by the whims of each government.

The paradox of living without a State is that what you’re looking for isn’t the absence of a State to enjoy; it’s the opportunity to spread different parts of your life across as many States as possible.

Here are a few ideas to help you reinforce your understanding of flag theory. When it comes down to it, only you can create your own flag theory.

6. Create an online company

With an online business, you have many good chances to build a life of freedom without a State. Of course, don’t forget to diversify your online company to avoid certain risks. In accordance with flag theory, you have to take three things into account:

Store your website offshore (in an external location) to avoid censorship, accidental disconnection, etc.
Of course, you also have to bear other factors in mind, such as speed, cost, and the possibility of the website crashing. The important thing here is to find the most suitable solutions out there. The Tax Free Today blog is stored offshore in the Netherlands, which has very high technical standards, but is managed by a US company.  The US is a good option for websites in languages other than English, because the authorities don’t care about them (although Spanish websites may be subject to a certain level of scrutiny).

Register a safe internet domain that also protects you from censorship.

The Tax Free Today blog deliberately chose a non-domestic domain in order to avoid possible EU regulations. However, there are safer domains in this case than .com.

Leave your emails on secure servers in countries that guarantee data protection and encrypt your emails. Service providers in Iceland are usually a good option.

7. Medical tourism

Your health shouldn’t be limited by borders either. You deserve to be treated and cared for where quality is high and costs are low.

Many doors will open if you get international medical insurance for an unlimited time. Did you know that Colombia has the best plastic surgeons? Or that Turkey has the best opticians?

With international medical insurance, you have access to treatment and medicine that may not be permitted in many countries. In case of serious illness, it could be your only option…

8. Marriage (additional passport through marriage)

Attraction is subjective; there’s so much variety in the world… It’s not a bad idea to take the nationality of your future life partner into account. This will easily allow you to obtain your second passport.

9. Children (additional nationality through place of birth)

Here you have the chance to give your children a gift they’ll be grateful for the rest of their lives. Where is the best place to be born? Research the nationality laws in your country and others. Being born in another country could ensure a better future for your children.

10. Virtual workers/assistants

With a little bit of luck, your company will grow. As it does so, you’ll need to hire employees. Where can you find the best employees at the lowest price? Which governments will cause you the least problems when it comes to dictating your labour relations?

11. Education

Your children deserve the best education possible. Find a country where they can receive this. Remember that formal education isn’t the only option. Homeschooling and unschooling are valuable alternative concepts that are forbidden in many countries.

12. Insurance

Living internationally doesn’t mean lacking insurance. On the contrary: you can choose from insurance on a global scale, pay much less, and get better benefits than in your country of origin.

What’s more, you can choose whether you want insurance or not, instead of being obliged to take it out. If you’re young and healthy, maybe you don’t want any insurance at all. Naturally, however, this isn’t advisable, especially taking into account the competitive rates involved in international insurance.

As an international freelancer, you won’t have to pay more than a quarter of the price of private insurance in your country of origin, and with the same (or even higher) amount of benefits.

Other insurance also tends to be a more economical option, because some markets are less regulated than others.

13. Data protection

In our world, which is getting more digital by the day, data is the new bargaining chip. That’s why it’s essential to store your most important documents and information safely and protect yourself from data theft.

How to maximise your freedom with flag theory

Planting flags in as many countries as possible maximises your freedom. Just as you should never invest your money in only one company, you should never trust only one country.

International diversification is key, and flag theory is the way forward.

Perpetual tourists are often on the move, but they don’t always have to be travelling to enjoy the advantages of flag theory.

You can start the internationalisation process slowly and take it as far as you want.

Finally, the freedom from the State you’ve desired for so long will be yours. Being free from the State means being a “citizen of the world”. You don’t belong to any state; you belong to yourself. Let flag theory help you maximise your freedom and make the most of your time and money.