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What is Flag Theory...
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[Sticky] What is Flag Theory?

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What is Flag Theory?

Its essence is to live in the countries where you are best. And every time you leave a piece of your life in a new country, you "set the flag." The goal is to diversify your personal and financial affairs so that no government controls you or your money.

What does the average person do? He is born in one country and spends his whole life in it. Goes to school, university, gets a job, opens and maintains all of his bank, retirement and savings accounts. Keeps all his finances in the national currency of that country. Owns real estate exclusively in this country. Has only one passport ... The ideal situation is for the government to control his every step, including assets, finances, work and income.

Flag theory prefers a freer and more adventurous approach to life, which, however however, it can protect against financial, economic, political instability in a particular country.

Investment consultant Harry Schultz, back in the 60s of the twentieth century, developed the original theory of three flags. In his opinion, a free person sets three flags of life.

Flag 1. Becomes a resident of a country where tax on income abroad is not levied
The nuance of the modern world tax system is that that even if you live in the country, income earned outside the country is not taxed locally.

For example, citizens of the Caribbean (Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, Grenada, Dominica) can make money anywhere in the world without paying tax in their country. Only their local income (such as a salary in a Caribbean company) is taxed. This means that Caribbean citizens can own real estate, for example, in Spain, rent it out, but pay taxes only on income from official work in their country. Likewise, they can work for international companies registered abroad and pay tax only on the income of their own company registered in the Caribbean. Global income is not taxed.

Flag 2. Builds your business in stable tax havens
If you are a resident of a country with low taxes or zero rates, you can create businesses and not pay tax on the income received. You can put the "flag" again in one of the Caribbean countries, since there is a zero tax for international corporations operating outside the country. In the Caribbean, the tax authorities do not even conduct audits and do not require reports. Google, Apple and other large companies operate in a similar environment.

If you want to invest funds, you can use them to create brokerage accounts or open bank accounts. When doing business and banking in a stable tax haven, any interest income or dividend you earn is also tax-free.

Incidentally, United States banks rank only 40th in safety in world, British - 44th place.Setting up a bank account in jurisdictions such as Saint Kitts, Antigua, Grenada, Dominica, Saint Lucia means better asset protection, more stability and much higher interest rates. Thanks to them, you will save more money earned.

Flag 3. Lives as an eternal tourist
The so-called eternal tourists do not live permanently in one place. Resident tax obligations begin to apply if you spend 183 or more days a year in the country. Then you automatically become a tax resident here. If you live in the country for less than this period, the tax office will not be able to prove your close relationship with this state.

Thus, eternal tourists spend 3-6 months a year in one country, and then live in the second, third. What for? In order not to pay extra taxes and not change a profitable tax residence. For example, if you are a citizen of Dominica and are its tax resident, you are happy with everything, especially zero tax rates. So why change your tax jurisdiction? Do you want to live in Dominica? Settle for a few months in Portugal, and then for a few more in Germany ...

How is this possible? It's simple: Caribbean citizens can move around the world without visas, living in other countries from 3 to 6 months a year.

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Oliver de la Rosa
Posts: 291
Joined: 4 years ago

Very interesting! Thank you very much for sharing this with us.