Perhaps the most important thing for anyone looking to move themselves or their assets offshore to understand is that this world is forever changing.
Tax laws and treaties, residency visa requirements, opportunities for obtaining second citizenship, documentation required to open a bank account, as well as the political situations, the values of local currencies, and the ease of coming and going… all these things change all the time.
The key to surviving and prospering in the current global climate is to internationalize your life. The best strategy for that is known as the Five Flags.
Grandpa’s “Five Flags” are to do with residency, citizenship, banking, assets, and business.
Not everyone needs all five flags planted, but the goal should be to plant whichever ones you do need in different jurisdictions.
Moving to another country and taking all your cash, investments, and business activities with you to that new country doesn’t achieve the goal of going offshore.
For the goal is diversification.
Fortunately, different countries shine for different reasons.
Some are better for banking, others for investing, some for residency, and yet others as places to incorporate your business. No country gets “A” ratings on all fronts, but some get closer than others.
The Five Flags are simply reference points, and they overlap. Residency and citizenship are related, banking and assets are related, business and banking are related, business and cyberspace can be related. But that’s not the point.
The point is that understanding the Flag Theory and taking this Five Flags approach allows you to create a road map you can use to simplify the very big-picture concept of internationalizing your life.
Planting your flags is about identifying which country (or countries) work best for your agendas and priorities. Break it down. Consider the options flag by flag.
Flag #1: Banking
The easiest first step can be a bank account in another country. It doesn’t require a move or any big commitment. But it does diversify the risks associated with holding cash.
You’ve got options in dozens of jurisdictions. Don’t get caught up trying to choose the “best” offshore banking jurisdiction. Shop for what’s best for you based on your goals.
Flag #2: Residency
Maybe you’re not ready to move to another country just yet, but you recognize the benefits of planting a residency flag somewhere offshore.
Residency rules can and do change as quickly and as often as banking rules, so, as with banking, my strong recommendation is that you take steps toward establishing a backup residency in another country as soon as you are able to.
Don’t wait until you think you need it. Getting the documentation together to apply for residency in another country can take weeks or months. In that time, the rules can change.
Flag #3: Second Citizenship
An offshore plan could and I’d say should include plans for a second passport. Many people think that a second passport wouldn’t be beneficial to them. I say au contraire. A second passport is an important part of diversifying your life internationally, no matter your circumstances.
Flag #4: Protect Your Assets
Simply put, asset protection means protecting what is yours.
Many people tell you how to increase your wealth. Asset protection is the other side of the coin. It is a defense—safe-guarding what you already have.
An asset protection plan could mean putting your money into property. It could mean forming a corporation. It could be an international trust or a generational insurance product…
Maybe it’s as simple as taking your teenaged daughter’s credit card away from her.
Asset protection can be many things, but I’ll tell you what it isn’t. Asset protection is not a scheme to evade taxes. Many imagine that operating in the offshore arena means you can take liberties when it comes to reporting income and paying taxes.
Don’t go down the path of diversifying your life and your investments and assets offshore because you want to “get away with something.” In today’s world, you can’t, and nobody looks good in an orange jumpsuit.
Flag #5: Overseas Business Incorporation
The key to maximizing the tax benefits of incorporating offshore is to retain profits over and above the Foreign Earned Income Exclusion (FEIE) in an offshore corporation.
Since the 2017 tax changes, profits retained in a U.S.-controlled foreign entity pay corporate taxes in the United States. That change was a bummer for those of us who’d already been doing business offshore and who had become accustomed to being able to defer 100% of profits for the purposes of U.S. taxes.
Still, under the current law, structured correctly, the rate of tax can be at least 50% less than the regular U.S. corporate rate.
Stay diversified,
Lief Simon
Editor, Simon Letter
