Let’s dig a little deeper into the Eight Flag Theory and how it works.
The Five Eight Flag Theory principle is simple: Position yourself, so it doesn’t matter where you are or where you’re from because it appears as if you're somewhere else or from somewhere else. That’s what being a human multinational is all about. To make it work, you have to establish each of the following in a separate country: (although it’s recommended for beginners to combine some of the flags in one country as a start)
FLAG 1: 2nd Passport
People often ask, ‘why get more citizenships if citizenship is used as a taxation tool? 2020/21 has highlighted the importance of having more than one passport better than any other answer I can possibly come up with. If you aren’t a borderless multi-national these days who can hide in plain sight, you’re royally screwed. The conventional answer, however, is that a second passport is an important part of diversifying your life internationally, simplifying visa-free travel, or giving you the right to live and work in another country or group of countries, for instance:
The European Union (EU), where being a passport-carrying member of any EU nation means you can live or work not only in that nation but in any other EU nation with no application or permit process required.
Mercosur in South America, whose member nations include Argentina, Brazil, Uruguay, Venezuela, and Paraguay. While Mercosur is fundamentally an economic treaty, holding a passport for a Mercosur member country simplifies travel to, from, and among other Mercosur countries.
CARICOM is a group of Caribbean nations where you can travel more easily if you come from (that is, hold a passport from) a member country.
ASEAN is a similar group in Asia, and others exist in other regions.
The final reason to get a second passport is if you want to give up your current citizenship. You can’t be stateless. If you’re considering formal expatriation, the first step is to acquire a second passport. Without that, your home country won’t let you renounce.
FLAG 2: Residency
The purpose of a second residency is to get all the benefits of living in a place without all the tax obligations of citizenship. You need to consider the following two important things before establishing residency in another country:
• Can your residency lead to second citizenship through naturalization; and
• What are the tax consequences of your chosen residency?
For example, Colombia taxes residents on their worldwide income after five years of residency, and this country imposes a wealth tax (that you may or may not qualify for, as the tax kicks in at around US$1.7 million at current exchange rates). Therefore, establishing a backup residency in Colombia may not make sense unless you plan to spend a lot of time in Colombia anyway.
FLAG 3: Offshore Company
This flag is about where you earn your money –– ideally somewhere with low corporate tax rates or a jurisdiction that allows you to “pass-through” corporate income to yourself, which has a residence in a country with low- or no-income tax. (See how it works?)
Where you incorporate your business is usually not where you have your office and operate your business. Still, you can save on taxes and protect your assets by creating a legal business entity like a trust, foundation, LLC, or company. Most advisors suggest this is the flag you have to plant first, as a company or corporation has multiple uses:
- Setting up a tax base
- Carrying debts and liabilities
- Buying property or assets
- Transacting business outside your own name
- Opening bank accounts (be aware that banking in certain countries can hurt your business by association)
- Gaining citizenship
- Establish privacy
- Gifting assets, and many more.
FLAG 4: Offshore Banking
This is where you keep your money, taking advantage of tax breaks from having your funds and assets in another country. Ideally, you would park your assets somewhere with safe banks, low capital gains, and passive income taxation. The best way to protect your assets is through diversification, which means creating various piles of cash instead of relying on one bank.
Before choosing an offshore bank, consider and compare the following country factors:
- Currency controls
- Asset protection
- Social, economic, and political agenda
FLAG 5: Playground
Number 5 is where you spend your money, ideally somewhere with low VAT, low consumption tax, and affordable cost of living. A place you like and where you want to spend time, or even buy an offshore property you want to live in, considering crime, personal freedom, climate, healthcare, infrastructure, and services! The world is your oyster – pick a place, pack your bags, and move. Also, with various countries introducing digital nomad visas in 2020/21, it is easier for online entrepreneurs, freelancers, and remote workers to work and travel internationally.
FLAG 6: Digital Assets
Suppose you want to move to a different country and you’re a cryptocurrency miner, investor, or trader (even more if you’re a crypto-anarchist). In that case, it is essential to consider the crypto jurisdiction, regulation, and tax laws. This is not always as straightforward as it seems. For instance, personal or individual crypto trades are exempt from capital gains, income taxes, and VAT in Portugal. Sounds great, right? However, these tax exemptions don’t apply to businesses like cryptocurrency exchanges, crypto or blockchain start-ups, and crypto hedge funds which have to pay a usual rate of 21% on their income.
What you want are crypto-friendly countries that support and accept Bitcoin and other digital currencies and encourage crypto payment for qualifying investments or with a low taxes on crypto trading.
FLAG 7: Digital Security
Finally, for Intellectual Property (IP) privacy and protection, establish a company in a country that will house your IP’s ‘economic rights.'
Flag 8: SURVIVAL
Flag 8, what we call "the survival flag," might be the most important flag of all. So we've written its own post and filmed an entire video about it. You can check it out here.