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.
W.G. 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 and (5) living in the playgrounds. Flag theory and permanent travel were once designed for the ultrarich and the independently wealthy, but now can be properly utilized by anyone willing to pursue an international perspective.
Times have changed. The “Game” is now different.
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 to set up an offshore company or bank account.
Entrepreneur’s skillsets are now highly valuable, and governments have begun to compete for our business. You can set up flags in various countries around the world, to not only decrease sovereign risk but increase opportunity. Chances are, you too can take advantage of flag theory if you are smart enough to realize the immense benefits of internationalization.
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.
- 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 as solved by planting just 4 or 5 flags. We should seek to plant as many flags as necessary to achieve the preceding categorical concerns.
The flag you place for “Citizenship” 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. It’s 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 be confusing and 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 2 years with a naturalization process. For a quicker timeline, an investment of $100,000 and a background check can get you a new citizenship in just 3 months.
There are many different passport options depending on your unique circumstances. Citizenship is sometimes a sensitive issue, but permanent travelers have a saying:
“ubi bene ibi patria” – Where one is well off, there is his country.
Citizens are taxed in a number of different ways, and it can depend on where your legal residence is located.
We are taxed when we earn. We are taxed when we spend. We are taxed when we die.
It’s been said that only two things in life are certain: death and taxes.
The 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.
Offshore Company & Trust
Legal Entities are the primary method of asset protection. Legal entities (most commonly companies or trusts) 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 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. As stated in our “Nevis LLC and Trust” section we highly recommend a Nevis LLC.
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.
It’s quite easy to find a jurisdiction for a business entity which has no tax, or territorial tax rules. But there are few with as many benefits as Nevis. The only jurisdiction that is considered better than Nevis is the Cook Islands, but it is more than 10 times the cost of Nevis.
Planned properly with the guidance of a professional, the 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; (1) a trustee, and (2) a beneficiary. The trustee can be an individual or Trust Company who you trust to keep assets held in the trust safe for the benefit of the beneficiaries. The trustee could even be a bank. 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.
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 operations, 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 and if you are a US citizen, please read our sections FBAR and FATCA.
“The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.” – Ron Paul
Depending on your individual citizenship and passport situation, you might have a much greater or lesser option for offshore banking. Countries and individuals facing sanctions might have difficulty opening up an account in certain jurisdictions. However, there are plenty of benefits to offshore banking for most nationalities.
What is an offshore bank account?
An offshore bank account is a bank account that is off the shores of where you currently live. In other words, it is a foreign bank account located in another country. Oftentimes it makes sense to setup this account in a different country than where you have your offshore company flag. This is because when you hold the account in a different country, it gives you additional redundancy, time and protection against a frivolous lawsuit.
Are offshore bank accounts legal?
Yes! International bank accounts are legal. There is nothing inherently illegal about owning an offshore account and they are not “shady” or unprofessional in any way. Trillions of dollars are stored in offshore jurisdictions and they remain an integral piece of international finance.
When can offshore bank accounts cause a problem?
If you are a US citizen and don’t file the right forms to report the accounts there can be criminal and financial penalties. Oftentimes the beneficial owners of offshore bank accounts create problems because they don’t properly report the accounts because they are trying to hide something.
Offshore banking is powerful, and thus it can be abused. You must make sure to file the correct forms with your relevant government agencies. This is why a professional approach is always helpful.
Special notes for Americans who own an offshore bank account.
American taxpayers with a foreign financial account must report all accounts every year using an “FBAR” form that your accountant can help you with. This form is required f the total amount across all foreign accounts exceeds $10,000 USD equivalent in any year. Other forms such as 5471 if you own shares in an offshore company and if the total amount is more than $50,000 then form 8938 also may apply. The main but you should check with an accountant for your unique situation. This is not tax advice, and should not be used to avoid taxes in any way.
Why open an offshore bank account?
- Currency risk
- Sovereign risk
- Asset seizure
- Different investments
- Ease of money transfer
- Merchant accounts
There are many reasons why an offshore bank account could be beneficial, not the least of which is to decrease your sovereign risk. The country where you live now could look dramatically different or fall apart, the government could institute exchange controls, meaning money cannot flow freely. Ask any Argentinian about the currency in their country and you’ll hear all about so-called capital controls.
Where can I open an offshore bank account?
There are a number of different offshore jurisdictions which offer bank accounts. In order for a bank to call itself a “Bank” – and have Bank in its name – there are a number of different requirements needed to be met.
Therefore, if the company comes from a reputable jurisdiction – you can be assured of capitalization or bonding requirements. A bank with a “class A” license can trade with the public. If in doubt, you can check with the company government agency, who maintains the compliance for all of the banks in the country.
For instance, if you were looking to set up a bank account in St. Vincent and the Grenadines, and you wanted to do due diligence, you could first make sure that bank has the proper licenses, by looking at the government registry.
How to open an offshore bank account – Introduction
It helps to a large extent, to have an introduction or pre-existing relationship with the bank where you are seeking to procure an account. Bankers are by nature very risk averse – and don’t want to lose their fat salary by signing up a high-risk client which later turns into a nightmare.
However, if you have an introduction and can tick all the proper boxes, there shouldn’t be a problem to open the account. You’ve bypassed their internal controls, and the burden of proof has been met. This burden of proof always includes the “Anti-Money Laundering Act”, (AML) and “Know Your Customer” (KYC) requirements. Basically, you need to meet 3 tests to pass KYC.
- Proof of identity (easy when meeting up in person, otherwise is a certified passport)
- Proof of residency (this is utility bill – and should have your name and address)
- Proof of wealth (letter from accountant or bank is best who can confirm your earnings).
These KYC standards are what banks do in order to satisfy their regulatory compliance. You’ll need to meet at least these standards to open an account at most banks.
After meeting the KYC requirements, you’ll likely be required to make an initial deposit into the bank. This can sometimes be immediately withdrawn, other times it will have to remain in the account as an ongoing account minimum.
For a corporate account, you’ll need to provide the following in addition to your proof of identity, residency, and wealth:
- M&AA (your incorporation documents, memorandum, and articles of association)
- Certificate of Incumbency – apostilled (who are the shareholders, certified copy)
- Certificate of Good Standing – apostilled (are the government fees paid, certified copy)
Be careful as many providers try to sneak this in for an additional fee. You’ll be unable to open a bank account without these documents, which show the true beneficial owners of the company. There will always have to be some record of who is the rightful owner of the bank account.
You’ll also need a director’s resolution to open up a bank account, or power of attorney for whoever is indeed opening and signing on the account.
Time should be dedicated to thinking about who will be a signatory on the account, and for which amounts they will be able to move money in and out of the accounts. If the account is to be a joint signature account – different banks have different technical abilities. Some, for instance, are far better at allowing for complicated signature requirements.
Banks in Hong Kong and Singapore (which are ideal for corporate banking) tend to be better in this regard. Offshore banks that are more for private individuals typically have fewer options when it comes to controlling of the company via signature and less robust online banking.
There are many places around the world that will open a bank for you if you actually live there, have a work permit and other necessary documents. However, particularly in terms of offshore banks, and those with remote account opening – your choices are rather limited.
Are Americans Being Shutout of Offshore Banks?
This is largely due to FATCA – the foreign account tax compliance regulations, part of the HIRE act – which has been pushed back and is due to come into effect this month. FATCA requires that banks report back to the IRS on all of their accounts (if they accept any US clients) – or simply refuse US accounts altogether. The penalty for non-compliance is a 30% withholding tax when utilizing the US banking system. For Americans.
“Foreign Account Tax Compliance Act” (FATCA) has been fully implemented and well over 70,000 banks have complied. You can look up any bank or FFI on the IRS website using a tool on their website. It is likely that any of these banks still accept US clients since they are going through the hassles of being an FFI compliant with the IRS.
There are still many banks that take on American clients. There are additional forms which are required on the bank’s behalf, but as a consumer, you won’t notice much of a difference (perhaps you will also need to file form 8938 – but your accountant can easily assist you with this.)
This can be gold, other precious metals, but most commonly it is land. We’d like to believe that the country in which we live is infallible, but the truth is that governments are fragile and inept. They can, and do topple. That’s why it is important to allocate a portion of your wealth or assets in a safe haven. Having a place to live elsewhere is a key element of 5 flag theory.
Why Buy Productive Land?
- Appreciating Asset
- Food and Water
- Last Bastion of Freedom
Productive land is one of the most valuable appreciating assets in the world. There is a limited amount – and it can be strongly held with a freehold deed. If the land is arable or has potable water, the price will increase accordingly. Call us prepared, or call us paranoid – we see having a hideout of productive land, food, and water being one of the highest priorities.
Clean Food and Water
There most likely will be massive shortages of organic food and natural clean water supply in the 21st century. The rates at which fish are being pulled from the oceans should be a cause for concern. Some estimate that there will be no edible fish left by 2030. Many people provide the arguments of fish farms, or that technology will solve these issues.
Or maybe technology won’t be able to fully replace clean water or healthy organic protein sources. Maybe naturally is best in these instances, and whoever controls the supply of clean food and water will be able to dictate pricing to the increasing demand.
The amount of potable water easily available in the world is decreasing at an alarming rate. In fact, the statistics for this seemingly abundant resource show it to be anything but abundant. Wars over water are extremely common in the most crowded places on earth.
Take for instance India and Bangladesh, where a decade-long war has raged over water rights to the Ganges river which flows through both countries. We oftentimes take for granted the fact that we have clean water (especially if we live in a developed society), but much of the world doesn’t even have clean running water.
As investors and entrepreneurs – if we can sense the changing of times and anticipate the coming waves of problems that will occur, we can position ourselves strategically to survive and thrive no matter what happens in the world.
The future is nothing to fear unless you are unprepared. If you are prepared, it is a time of opportunity where anything is possible. Trillions will be made and lost depending on who is able to capitalize on emerging economies, fresh food, and clean water.
By 2025, 800 million people will be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under stress conditions. Source: FAO
The key to success and survival in the future involves Internationalization through a foundation of flag theory and access to healthy food and clean water. This is possible to achieve for yourself with a physical land.
There are places all over the world which have a potential for physical land. However, unlike an offshore company or trust which is virtually the same commodity (a company in Nevis is always a company in Nevis) land is highly contingent upon the individual property. This makes it hard to strategically state that unequivocally the land in one jurisdiction is better than another.
For American Citizens
US citizens almost never have to pay US taxes on non-investment, non-income producing property located outside of the US. There are obviously some countries that have little to no property tax. Thus, a large amount of money can be legally invested in the US, tax-free, without reporting requirements in the form of non-income producing the property.
The International property is a great way to invest internationally, however, you can’t receive capital gains on the property, so it must be a single-family home in most instances. This is still highly desirable for many people – who enjoy the power of their dollars invested abroad and enjoy living large in foreign countries. You need to be particularly careful when buying international property, however, particularly during the acquisition stage. The International property is one of the best ways to get wealth legally transported outside of the US.
What to Look out for When Buying Land Internationally
Despite its advantages, there are many things you have to watch out for when buying international property. It can be very difficult to get a clean title in some instances. The title is the piece of paper that certifies that you legally own the land. There are many swindlers out there who will promise a piece of property that looks great on paper, and in person; but in reality, the two are not connected, and one or both are fake and not for sale.
What to Do?
You make sure you are actually buying the land, house or property that you think you are AND that you can properly deliver on the terms of the arrangement. You may have an issue getting the land properly conveyed if you don’t meet every stipulation in the contract. This is a common way for foreign lawyers to dupe unsuspecting investors. We recommend you use a professional from the Arden Group.
Never, ever use a lawyer or real estate agent that the property owner suggests. You’ll always want to talk with reputable professionals from the Arden Group before executing any business transaction overseas. Oftentimes laws will be completely different than what you are used to.
The contracts and title will most likely be in a foreign language, and it can turn out that very ‘nice’ people, just up and disappear, leaving you with an expensive (yet worthless) piece of paper and no property. Having the Arden Group perform the due diligence is a key step to this process. The more you know, the less chance of someone “pulling the wool over your eyes”. Only non-investment property can be tax exempt. However, if you are going to buy some investment property overseas, you would be very wise to use a property management company.
Oftentimes, the property will be sold with tenants already installed, and you will never have to worry about the units going vacant. By using a property management firm, you also don’t have to worry about the hassle of repairs or collecting rents. Using a property management firm is a sound idea from all angles.