Flag Theory is an offshore diversification strategy aimed at internationalizing all aspects of your life. It is about creating an offshore plan for business, banking, investments, residency, citizenship, taxes and digital footprint so that you can maximize your freedom while protecting your assets and reducing your taxes.
The idea was coined 50 years ago by Shultz who made a name for himself by his pioneering internationalizing ideas. Though a lot has changed since then and so to have the way these flags are planted.
There are many ways you can begin your offshore flag journey. Flag theory can help as an ideological roadmap. The idea is to plant multiple flags around the world in different jurisdictions so that you can get the highest returns, incorporate in the strongest business environment, invest in the best assets, and enjoy the freedom of living in a place that ticks all the right boxes.
Individuals, investors, and entrepreneurs can benefit by global diversification. The increasing level of global multi-lateral reporting obligations now requires you to move both your ass as well as your assets in order to fully maximize the benefits of an offshore international strategy.
Flag Theory offers you and your finances options in times of instability and uncertainty by providing a reliable plan B and multiple diversification options so that you never have all your eggs in a single basket.
Some of the benefits you stand to gain from diversifying include:
Flag theory has evolved as worldwide structures and laws change. It remains a legal way to protect your assets from governmental intrusions and restrictions in your home country.
Flagging involves planting possibly up to seven flags to strategize your financial and personal freedom.
Not everyone needs all seven flags planted, the goal should be to plant whichever flags you need. Moving to another country and taking all your cash, investments, and business to that country does not achieve the goal of diversification.
Different countries shine for different reasons. Some are better for banking, others for investing, others for residency, and others for incorporating your business.
Planting your flags is a process of choosing which country or countries work best for you.
In most countries, obtaining residency precedes applying for citizenship. While a second passport is a critical step in the move to a sovereign plan, it does require either (a) time or (b) money. It can take anywhere from 2-10 years or more to be granted full citizenship and obtain a second passport. There are however many countries in the world that have minimal requirements and demands where you may not have to spend the entire year in residence in order to qualify.
If time is not on your side and you have the cash you can spend 100,000 USD for a second passport through citizenship by investment program offered in many Caribbean countries and several places in Europe (though European passports are often 1 million USD).
Places such as Vanuatu, Dominica and Nevis have programs where a passport can be bought for 100,000 - 200,000 USD and can be processed in 3-6 months.
Citizenship provides more than just travel benefits and visa-free opportunities. It gives you freedom from the domain of any single authority and makes you a sovereign individual freed from the domain of the state.
Up until several decades ago, second passports where only for the ultra-rich, however, it is becoming increasingly available for the middle class as member countries begin to compete for the lowest priced passport.
However not everyone is ready for this step, and if a second passport is too much of a jump to begin with then a second residency offshore provides an alternative that requires a few more hurdles but can be suitable as a substitute.
An important factor to consider before applying for residency in another country is that country’s tax obligations. Finding a second residency is about having a plan B in place that offers a friendly livable environment where you treated as a first-class citizen all the while reducing your tax burden.
Creating a business entity separates you as an individual from your assets This increases the overall level of protection and privacy for your wealth. By incorporating offshore, you benefit from not only privacy and protection but also tax reduction and diversification, while at the same time gives you possibilities of using the entity for any number of investments such as owning offshore real estate, opening bank accounts, holding assets for a trust, and literally thousands of other possibilities.
If the country where you reside has Controlled Foreign Corporation (CFC) laws then you may be required to pay taxes to your government and declare all foreign entities and accounts. Whether or not that is the case is dependent on the laws that require you to pay taxes on all worldwide income as opposed to only income that was generated within the boundaries of the state.
If you decided to set up a base in an offshore tax residency then you would be free from needing to pay taxes on worldwide income as many countries have territorial taxation laws which tax income that was acquired within the country.
Planting a flag in a separate country other than where you live and where your company is formed greatly diversify your finances and reduces your overall level of risk. There are many foreign banking systems that are much more secure, stable, and liquid than most banks in the UK or the US for instance.
Ideally it is best to plant this banking flag in a country that has a stable political and economic outlook. Whether it is a regular private or business account, brokerage account, or any other private investment fund they all would be far more secure in an overseas jurisdiction which has a second set of laws that protect the assets.
Offshore banking minimizes vulnerability to lawsuits and creditors who would attempt to break into your accounts. Creditors have a much harder time chasing funds down in countries outside of where you live. An overseas banking system also reduces possibilities of theft, government confiscation, and wrongful seizure due to the fact that you are not physically living in the country and that many countries do not recognize foreign court orders unless there is proof of criminal negligence.
Creating an account in a bank that has sound banking policies, high capital reserves based in a country whose government has low debt all helps to ensure your assets are secure.
Offshore bank accounts offer stability and diversification of your wealth, as well as higher interest rates and currency diversification so that your assets are not vulnerable to any single economy, thereby managing what is known as sovereign risk.
One of the main tenets of Flag Theory is to have residency in multiple countries as a part of your international diversification plan. Many of the most popular expatriate destinations do not tax your extra-territorial income. If you reside in a country that does not tax your worldwide income then you can effectively reduce your tax burden to almost nothing.
Residency based taxation is about moving to a low tax country where you can enjoy tax-free status on all income made outside the country. If you own an offshore company you are able to perpetually defer your taxation indefinitely and can potentially remain completely tax-free. Though it is important to talk to an account a lawyer in order to effectively map out your tax obligations.
Planting flags in different parts of the world helps to protect your assets. These assets can include real estate, productive agricultural land, gold bullion, rare coins, other precious or strategic metals in storage vaults and collectibles such as artwork, wine and cigars. Also important to consider are active or passive ownership interests in productive businesses as well as ownership in listed securities, bonds etc. held in brokerage trading accounts.
The last two flags are additions to the original 5 flags, which were added a few years back as the modern economy began to change and evolve. Digital theft is becoming much more prevalent as e-commerce becomes more and more popular. This is likely a flag that most people may not be so concerned about. However you don't know what you have until its gone. And losing your digital identity is a difficult thing to get back and recover from
Protection is done through secure your digital files, hard drives and records on servers in countries with the highest record of digital security and infrastructure reliability. The use firewalls, VPNs, and merchant accounts that are secure while also including your domain security, encrypted email and telecommunication.
Investing in digital assets is one of the newest flags that has been added within the past decade. Cryptocurrencies and blockchain technology promise to give another dimension of security to global citizens looking to expand their portfolio,since these assets are not tied to any country and therefore are completely free from sovereign risk. Digital assets transcend all jurisdictions which is why it is a separate flag of its own.
These types of assets are not for everyone yet, however, it is likely that blockchain will become more integrated within the economic structure in time and will, therefore, prove to be an extremely beneficial area for the sovereign man.