Introducing Flag Theory: A Must-Read for Nomad Capitalists
Anyone who’s upwardly mobile and has a bit of cash in their pocket should know about Flag Theory.
If you haven’t heard of Flag Theory, today is a good day to learn about it. So let’s jump right in.
Flag Theory refers to “planting flags” in different parts of the world to diversify and internationalize your life. It is about maximizing your freedom while protecting your financial sovereignty.
The term “Flag Theory” was coined by investor Harry D. Schultz over 50 years ago when he proposed his 3 Flags Theory, in which he suggested that:
everyone should possess a second passport;
a residency in a tax haven;
keep assets outside of their home country.
His 3 Flag Theory was later expanded by W.G. Hill to Five Flags to include:
a country (or countries) where money is earned;
a country (or countries) to live in for recreational purposes.
So, in a nutshell:
Flag Theory states that you should go where you (and your business) are treated best.
I firmly agree with this!
Flag Theory in Action
Reading through the Five Flags - especially the part where you should get a residency in a tax haven and a second passport - you may be thinking: “Oh well, that’s only for the rich. Not for me.”
Yeah, well, some of it is. A second passport costs around $100,000 - $250,000 and takes a while to get and a residency in a tax haven will typically cost you more.
However, that does not mean you can’t maximize your freedom, optimize your taxes, and raise your quality of life by applying the concepts raised by Flag Theory.
Let’s look at examples of how you can apply Flag Theory:
You can increase the quality of your life by spending time in a more affordable, yet nicer part of the world (or your country) for large parts of the year. This is called standard of living arbitrage.
You can set up your business in a jurisdiction with low corporation tax. You can do that online these days.
You can make global investments that provide you with exposure to different regions as opposed to only investing locally. Owning real estate in different countries would be a good example.
You can become a tax resident of a country with a low-income tax to boost your take-home income. It doesn’t have to be a tax haven. There are plenty of countries out there with taxation laws that are not completely insane.
You can open up offshore bank accounts to ensure you can access money in case your country’s banking sector runs into trouble. On that note, I would also strongly suggest looking into bitcoin as an alternative store of value.
Aside from having an awesome name, Flag Theory communicates something very important that not everyone knows.
You can improve your quality of life, your finances, and your level of freedom by looking beyond the borders of your country.
For some, that means living in Thailand for six months of the year while having their business set up in Singapore and their tax residency in the UK.
For others, it means moving to and residing in a tax haven.
While, for others, it could mean setting up a tax residency in a low-income tax jurisdiction and perpetually traveling the world as a digital nomad.
However you choose to live your life, know that there are ways you can increase your freedom, wealth, and well-being. Flag Theory is one of them.
Love, peace & anarchy,