From Second Passport to Five Flags
Keep those messages coming. I thoroughly enjoy reading and replying to your fascinating mail.
I usually give a monthly update on the first day of the month, but I’m going to save that for an easy Friday read tomorrow. Today, I’ll finish up with our passport conversation… for now.
But first, a big mea culpa!
The Latin is Not Strong With This One…
I’m well educated, but certainly not classically educated.
So let me correct a few mistakes from yesterday’s Rude.
Jure Sanguinis should be Iur Sanguinis for citizenship by right of blood.
Jur Solis should be Jus Solis for birthright citizenship.
I think the principle of jus solis is quite young, after the introduction of the letter “j” into the alphabet. But I should’ve known about the “I” in “Iur”…
I mean, how many times have I watched this movie?
Professor Henry Jones: But in the Latin alphabet, “Jehovah” begins with an “I”.
Indiana Jones: J-…
[he steps on the “J” and almost falls to his death; he scrambles back up]
Indiana Jones: Oh, IDIOT! In Latin, Jehovah begins with an “I!”
So please forgive my mistakes. I shall brush up on my Latin once I get through my Italian lessons.
But since we’ve brought up my favorite archaeologist, let’s use him to explore flag theory.
Indiana Jones and The World is Your Oyster
God, I loved Raiders of the Lost Ark as a kid. I still watch it every 3 months or so.
I credit it for my wanderlust and seemingly ridiculous love affair with the Middle East and the Magreb. I think Napoleon was right when he said that if there were to be only one world capital, it’d be Istanbul.
Traveling to Abu Dhabi and Dubai remains a great pleasure for me. Marrakech and Tunis are fabulous.
I learned to scuba dive off the coast of Sharm El Sheikh in the Red Sea. St Catherine’s Monastery was amazing, but the bush was not burning. C’est la vie…
I’ve not been to Cairo or Petra, but they’re high on my list when things calm down.
I’m just an Old World kind of guy, I guess.
This may be the biggest benefit of planting Five Flags. You can do what you want, where you want, while your assets are protected.
Let me lay out what the Five Flags are first.
The Five Flags
A Second Passport
We’ve covered this over the past few days. The benefits are numerous. As an American it doesn’t protect you from everything, but it’s a start.
One of my friends, a dual American-Italian citizen, used his Italian passport to explore Iran. You can’t do that if you only have an American passport. He loved it. I remember him telling us all about the things he saw in Tehran over a nice bottle of red.
As Indiana Jones’s dad was Scottish, he could’ve used his British passport to get to places his American passport wouldn’t.
Set up your business in a country with low corporate taxes. America’s corporate tax is a bit high for my taste, and it’s only going up under President Sniffy-Sniff.
If you’re an internet entrepreneur, have an ecommerce business, or are a digital nomad, this is an especially smart option to explore.
Perhaps Indy could’ve set up a business in a tax-friendly environment like the Cayman Islands to shift those antiquities for greater profit.
Tim Ferriss popularized the concept of geoarbitrage about 15 years ago. Geoarbitrage is the act of earning money in one currency and spending it in another. For instance, you can still earn in USD, but spend your money in, say, Philippine pesos if it’s cheaper to shop in the Phils.
I do that all the time.
One of the perks of living in the Philippines is the ability to earn in USD but spend my cash as pesos for holidays, groceries, or anything else I buy. Not everything is cheaper here, but many products are.
The same would be true for expats in Central and South America and Eastern Europe, in particular.
Choose where you spend your time wisely. Try to live and play in countries with a lower cost of living. There are many beautiful countries in the world to do this.
I happen to do it in Southeast Asia. Others prefer to be closer to the States and choose Costa Rica, Guatemala, or Ecuador as a result.
If the country has no sales tax or value-added tax (VAT), it’s all the better.
This goes hand-in-hand with playgrounds.
Governments are clamping down on perpetual travelers. They’re people who don’t live in any one country long enough to pay taxes anywhere.
Some countries are saying, “Well, if you don’t pay your taxes anywhere, you should pay them in your own country.”
That’s why it’s much wiser to go to a country with low to no income tax and rent there.
My signed rental agreement prevents either of my home countries from saying, “You must pay tax here.” Sorry, but I live in the Philippines and here’s my proof.
In essence, you need a place to hang your whip and fedora.
Let’s look at different systems of international taxation. Please keep in mind that if you’re American, you’ll still have to pay Uncle Sam his squeeze:
No Income Tax
This includes Monaco, the UAE, and the Cayman Islands, among others. There’s simply no income tax. You don’t pay anything to these governments. Nice.
This includes Singapore, Malaysia, and the Philippines. Say you live in the Philippines, but all your income is from, say, the United States, you do not pay income tax on the US earnings. You only pay income tax on income earned within the Philippines itself.
I love this system of taxation for obvious reasons.
This is most of the world. If you live in one of these myriad countries, you pay income tax on your worldwide income. That is, if you live in the UK and have investments overseas, you pay UK tax on those overseas investments.
Not the best choice if you’re trying to avoid tax, but it is done this way in most of the world.
The United States and Eritrea. The only two countries in the world that charge income tax on worldwide earnings whether you’re actually living in the country or not.
Not ideal for obvious reasons.
To have a look at the complete map of international taxation, head here.
Finally, you need a place to put your assets.
For me, this was easier, as I was getting shipped around the world for various jobs. It was as simple as opening a bank account in each country to get the ball rolling.
Sometimes, you’ll have to fly to the country to open an account. Sometimes, the initial deposit can be quite hefty.
But the most important things to focus on are a great legal system, a stable banking system, and, if you can get them, decent interest rates.
If you have any antiquities from your adventures, you need a safe place to store them.
Andrew Henderson, of Nomad Capitalist, adds two more flags. One is protecting your digital assets, such as websites and email. The other is prioritizing your social life. Both are indeed important.
I can tell you, I can’t wait to get back to the West to be closer to my friends. I really do miss them. The spontaneity of just winding up in a pub for a few pints is just wonderful. And it hasn’t happened to me in years.
So make sure you find a place that you love and can also immerse yourself in. Friends matter in this world. Like-minded friends make it all the richer.
If you can get all these ducks in a row, you’ll have truly found your Holy Grail.
Good luck with it!
All the best,