The Foundation

Estimated reading time: 16 minutes, 59 seconds

A Different day, a different country. Passports and bank accounts. Corporate documents and tax havens. Small islands and encrypted communication. Boats. Helicopters. Gold. Flag Theory. PT.

Bond… James Bond.

Flag theory is the art and science of being a permanent traveler. Not confined by the borders of any one country, flag theory is for PT’s who strategically place flags around the world to increase freedom and prosperity.

The spy-like lifestyle was first mentioned in 1964 by Harry D Shultz in his novel “How to Keep Your Money and Your Freedom”. The original Flag Theory was comprised of the following 3 flags: (1) a second passport, (2) a safe location for your assets outside your own country and (3) a legal address in a tax haven.

A free individual, living in a not so free world.

WG hill later coined the term “Flag theory” and also refined the idea that a person could be a “PT” a permanent traveler – also known as a perpetual tourist or just passing through, and he added an additional 2 flags: (4) where the millionaire invests his money the (5)th flag living in the playgrounds. Flag theory and permanent travel was once designed for the ultra rich and the independently wealthy, but now can be properly utilized by anyone willing to pursue an international perspective.

Times have changed.

You no longer need to go island hopping on a G6 to be a PT or take advantage of flag theory. The information age has sprung forth an entire generation of smart, capable entrepreneurs who don’t rely on a job in one place to make money. Flexible passport options and accessible legal entities make it possible for anyone set up flags in various countries around the world to decrease their sovereign risk. Chances are, you too can take advantage of flag theory, if you are smart enough to realize the immense benefits of internationalization.

Respect needs to be paid to those who created the idea of flag theory. However, the world has changed and as such, expounded, new definitions of flags are needed and a revised edition is necessary. The new flag theory doesn’t advocate just 5 or 6 flags, but rather as many that are needed to satisfy the objectives listed below.

The Revised Flag Theory

The revised flag theory is less concerned with setting up in a set number of jurisdictions, and instead focused on identifying solutions to categorical concerns. The new flag theory is about determining the best course of action for the problem you are facing by using an international perspective. The altered hierarchy is designed to compartmentalize problems to be able to best identify a solution based on our issues, for example:

  • Where are the best places to incorporate globally as an internet entrepreneur?
  • I pay too much in taxes, how can I lower this obligation legally by utilizing an international perspective?
  • My employees cost too much and carry huge liability, where else can I hire english speaking skilled labor?
  • How can I effectively pass wealth on to my heirs?
  • What countries offer second passports, and what’s the process for obtaining citizenship in these nations?
  • What’s the most effective corporate structure from a liability and risk standpoint?

We should no longer consider our situation solved by planting just 5 or 6 flags. We should seek to plant as many flags as necessary to achieve the preceding categorical concerns which are detailed below.

Flag 1: Citizenship and Residency

The flags you place for citizenship or permanent residency can have a dramatic effect on all the other flags. A second passport is widely recognized as a critical step you can take to reduce your sovereign risk. A passport facilitates worldwide movement and travel.

However, citizenship is much more than a passport and travel document – it’s a social contract maintained with a government. With this contract comes benefits, and sometimes drawbacks, its up to you to determine whether you want to continue to be a citizen of your country of birth – or if another option is more beneficial to your current situation.

The whole idea of a second passport was previously only available to those with direct lineage, or the ultra-rich who could afford to bribe immigration. Passport programs can also be confusing and the government guidelines are not always clear. However, the ability for anyone to receive a passport has changed dramatically in the past few decades.

A second passport or citizenship was previously expensive or tedious to acquire. However, changing laws, increased low-cost mobility, and other factors have created passport opportunities. Now a person can achieve a legitimate citizenship by naturalization for about $5,000 and 3 years with a re-domiciliation process. For a quicker timeline, an investment of $100,000 and a background check can get you a new citizenship in just 6 months.

There are many different passport options depending on your unique circumstances. Citizenship is sometimes a sensitive issue, but we permanent travelers have a saying:

“ubi bene ibi patria” – Where one is well off, there is his country.

Flag 2: Taxation

Citizens are taxed in a number of different ways. We are taxed when we earn. We are taxed when we spend. We are taxed when we die.

Its been said that only two thing in life are certain: death, and taxes.

Tax has become an increasingly complicated and intricate affair as individuals and businesses seek to avoid taxes which is completely legal.

Courts have repeatedly ruled that tax evasion is a crime. But that tax avoidance isn’t. It’s well within your rights to pay only the amounts required by law, and nothing more.

Many individuals and companies currently legally minimize their taxes by intelligently making use of international corporations offshore. In fact the largest companies in the United States use offshore Companies to legally defer taxes, sometimes indefinitely.

The growing number of entrepreneurs with a worldwide focus, or location independent operation are looking for answers. The day of the micro-multinational is upon us. If you ever have a question regarding taxes, you should direct it to a qualified tax professional or tax attorney.

“The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.”  –  Ron Paul

Flag 3: Business Entities and Asset Protection

Legal Entities are the primary method of asset protection. Legal entities (most commonly trusts or companies) are able to protect your wealth and your business and save dramatically on taxes.

A business entity is paramount to conducting business, and for a few hundred or a couple thousand dollars, you can create a business entity – something outside yourself that can be used for literally thousands of objectives. A company or corporation is capable of carrying debts and liabilities, buying property or assets, and transact business outside your own name. This new entity can also be used to open bank accounts, gain citizenship, establish privacy, gift assets, set up a tax base, extend beyond your lifetime, protect and grow wealth, and accomplish many other goals.

Business Entities are one of the most important flags to plant internationally.

If you own a business of any size, a business entity is absolutely critical, but something some people sometimes ignore for other issues such as marketing. However, for personal financial management and planning, legal entities have numerous advantages. I’m a firm believer that anyone can gain from the benefits of a legal entity. For many people, a legal entity in their home country may be enough – however many people can benefit from an offshore incorporation as well.

With almost all incorporations, you can get a bank account anywhere worldwide. You can, for instance set up a Singapore bank account with the proper company documents from the United States, or Nevis, or Hong Kong.

Asset Protection flags are where your business maintains a registered office – the place where your company’s articles of incorporation are filed. It is usually not in the same jurisdiction as where your office is, for reasons of liability and taxes.  Many people use offshore companies in places like the Cayman Islands, Belize, Guernsey, or other no-tax or low-tax jurisdictions.

Asset protection flags are interesting, because you can sometimes objectively state that setting up a company in Nevis as an LLC might be better than Hong Kong, because there are less reporting requirements and you don’t face a yearly audit. Alternatively you could state that Hong Kong is more reputable and won’t send up a ‘red flag’ to the authorities.

Its quite easy to find a jurisdiction for a business entity which has no tax, or territorial tax rules. Planned properly with the guidance of a professional, tax can be deferred indefinitely, or eliminated completely.

“Each person enjoys, over himself and his powers, full and exclusive rights of control and use, and therefore owes no service or product to anyone else that he has not contracted to supply.”  – G. Cohen

Trusts Can Also Be A Flag

A trust is comprised of 2 essential, basic parts; a trustee, and a beneficiary.  The trustee is the person who you trust to keep assets held in the trust safe for the benefit of the beneficiaries. The founder is the person who creates the trust and a protector is a person who can veto or remove the trustee. A trust can be the owner of a business entity and create an additional level of protection. This is because a court order cannot compel a person located outside their jurisdiction to take action. A trust is an efficient way to place assets outside your ownership, but somewhat within your control – as the trustee has a fiduciary duty to protect the assets for your benefit.

Learning more about asset protection can dramatically improve your business, and also can help with your wealth management.

Flag 4: Business Markets and Wealth Management

The countries are where you hold your assets and wealth should be held in another jurisdiction from where your money is actually earned or spent. Ideally, these jurisdictions have a reputation for privacy, professionalism and stability.

One you have protected your assets within a legal entity, its important to invest your liquid assets in an intelligent fashion. This is highly contingent upon your individual circumstances and risk profile. One thing should be clear, your financial planning should not be restricted to just plopping cash in a bank account and watching it dissolve slowly over time due to inflation. You need to be personally responsible for the growth of our wealth, and how we protect and manage our assets.

Flag: Bank Accounts

What country you bank in is almost as relevant as the bank itself. A systemic collapse could wipe away your liquid assets. Obviously this is a long shot, but we should prepare for the worst, and hope for the best. I don’t like to keep all of my money in one bank, or all of the banks within one country.

Bank accounts can be opened under a personal name, or through a corporate account and controlled and owned by a legal entity.

Other relevant flags within this sector include: brokerage accounts, investment advisors, private funds, opportunities for business, and essentially anything that makes you money. While legal entities provide the vehicle for investment and business, business markets are the highway upon which we drive.

“Freedom can run a monetary system as superbly as it runs the rest of the economy. Contrary to many writers, there is nothing special about money that requires extensive governmental dictation.” – Murray Rothbard          

Flag 5: Infrastructure and Intangible Assets

The internet has changed the face of business and commerce forever. Now that businesses can operate without an established base, from the internet – the locations where our infrastructure flags are planted becomes important. Just where is the flag for the infrastructure of an internet business.

Further, our intellectual property and intangible assets are more at risk than ever before. You need to be hyper vigilant about the security of your financial information, passwords, and national identification number.

Three questions you might ask yourself about your data security and infrastructure…

  • Where are the servers which host your website physically located?
  • Where, and with who is your domain registered?
  • Where do you drop ship from?

It’s like anything else, you often don’t appreciate it until its gone. Your security, your identity, and your website need to be protected at all times. Not knowing is no longer an excuse. Sensitive information should be sent via encrypted email. Firewalls, VPN access and virus software are a must. It’s not about being paranoid, its about being prepared.

Your merchant account is the point of sale for your business if you operate an internet business. Merchant accounts have altered the landscape of business and commerce forever. For the very first time, a teenager in Wisconsin can pay a programmer in Russia to build a website and start accepting payments from a buyer in Brazil. With a website and a merchant account, you have instant access to the worlds largest marketplace – the world wide web. Overnight, your business can be a micro-multinational.

Other Infrastructure and Intangible Assets flags: Important documents, servers, merchant accounts, processes, server farms, domain registration, encrypted communication, patents, passwords, industrial design.

What’s changed?

Instead of looking for a set number of jurisdictions to establish 3, 5 or 6 flags, I posit that we address each of our problems individually to pick out the best jurisdiction for our unique needs.

For instance, many entrepreneurs don’t have just one business, so the idea that one jurisdiction is all that is needed as a business base falls short. Entrepreneurs should use legal entities trusts, corporations, LLC’s and other set ups to create maximum profits and minimal liability. A person can implement the best jurisdictional law from any country in the world.

The essence of the PT lifestyle and the original flag theory remains: Freedom. Freedom of mobility, from excess taxes, from obligations, duties and services we don’t enjoy. Being a PT is about the individual right to liberty and the pursuit of happiness wherever we happen to find it.

“Man is free at the moment he wishes to be.” – Voltaire

Previous Flag: “Business or investments in low or no tax environments.”

Taxation is not longer as simple as setting up an business in a low tax environment. Complicated tax laws have made some of the original suggestions from Harry D Shultz are ineffective or even illegal. Not to discount his pioneering of the field, but a more comprehensive and holistic view of tax issues is necessary, especially for ex-pats who no longer reside in their home domicile.

Moreover, your business domicile is not necessarily your tax domicile, and vice versa. Also, Business and investments in low or high tax environment are highly relevant. It’s possible where the increased tax burden is offset by the increased ROI, or that the investment is more secure. The goal is no longer to blindly search for zero tax obligation, the goal should be maximum profits.

This category is redundant. The internet was a game changer, instead of making the world larger, the world is becoming smaller and increasingly interconnected. Work and income can be effectively maintained without a physical location or a flag.

You no longer need to live in one place to work, or rely on an employer for a job. For the first time ever, a small business owner in Dallas can pay a programmer in Russia, start a website, and set up a business that funds them living in Italy as an ex-patriot.

Previous Flag: Playgrounds

The playgrounds “flag” has been eliminated. Lifestyle is not a flag, lifestyle is fluid experience, a journey. Flag Theory assumes that the lifestyle is a given, but won’t dedicate significant forethought to the subjectivity inherent in lifestyle choices.

This system assumes you live co-currently where you play and work. After all, what good is all the wealth and money in the world if you don’t have the time to enjoy it? Most people drift through life with a deferred life plan, or only spend part of their year on vacation. Permanent travelers spend their lives building a business from a location that resonates with them on a deep level. Rather than eliminate the ‘playground flag’, I center lifestyle is intrinsic for the type of person who implements flag theory.

The elimination of the playgrounds flag does not mean that you can’t build a recording studio at your buddy’s resort, or a house on a secretive island in South East Asia. I merely posit that it shouldn’t be considered a flag that’s used for a strategic advancement of solving your privacy and freedom issues. Further, your playgrounds as a PT is highly mobile, and can effectively be anywhere you enjoy spending time. No flag needs to be planted.

Whereas once you established a legal entity flag, it’s “planted”. It makes little sense to alter it indiscriminately. However, our playgrounds can be constantly changing, and this is WHY we established the other flags, so that we can enjoy privacy, wealth and freedom.

The whole premise of flag theory rests on your ability to be a free individual, location independent, so that each country we visit views us as a tourist, temporary, just “passing through”. Furthermore, It makes little sense to stay in one place for one time, unless you want to qualify as a tax citizen.

Increased Government Scrutiny

When Shultz first mentioned strategic expatriation and offshore tax havens almost 50 years ago, the world was a different place. There were no KYC restrictions, complicated reporting procedures or unfair stigma that unfortunately sometimes scares people away from the legitimate, professional and legal offshore business environment.

You may benefit from an offshore company, but you should proceed with caution and talk with an international tax attorney from your principle domicile before you form an offshore company. As governments clamp down and attempt to shut down the offshore world – it’s important to ensure that your actions are legal, and that your tax minimization doesn’t turn into tax evasion.  Now more than ever, you need to be intelligent in your business dealings, communications, associations and actions.

“You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard, and, except in darkness, every movement scrutinized.” – George Orwell

The rules of the game have changed.

It’s not all changes for the worse, living in the information age, anyone can create abundance. Flag theory is no longer for millionaires, flag theory can be used to become a millionaire. Flag theory can facilitate anyone with expendable capital to invest internationally in the most attractive investments for their situation. Many millionaires traditionally benefitted from an international trust, perhaps you too could benefit from an asset protection trust which are now relatively inexpensive and easy to acquire.

The offshore world was previously unavailable to the layperson, but now an offshore company can be formed for under $1000. The nature of the internet has created an entire generation of entrepreneurs who might benefit from the decreased liability of an offshore company. However, there are many issues to consider to make sure your offshore flag is established legally.  Despite common misconceptions linking offshoring and tax evasion, there are numerous reasons you might want to incorporate outside your home state or country.

Increased asset protection, decreased liability, access to new investors and local compliance are just a few reasons for creating a foreign corporation.

Freedom

The fundamental need for flag theory comes down to this: You are a free individual, and every possible step should be taken to protect and preserve that freedom.

  • Flag theory is for those who desire to live truly free. To achieve individual autonomy and freedom decrease or reliance on any one system.
  • Flag theory isn’t a method, a technique or a strategy that mandates specific requirements. The principle goal is thus: to attain superior quality of life by establishing flags in the best countries around the world.
  • Flag theory allows you to diminish the risk of principally operating and storing your assets within the borders of one jurisdiction.

Your individual flags should mitigate your sovereign risk, legally avoid taxes, while increasing profits, safety and wealth. Flag theory is for individuals who are no longer confined by the borders of any one sovereignty.

“Flag theory is for those with courage enough to pursue freedom.” – W.G. Hill

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About Edmund

Edmund is an Emerging Markets Entrepreneur and Investor. He is an Advocate and Provider for Personal Privacy, Freedom, and Wealth.

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