Editor’s note: This story was originally published here Live and invest abroad.
Perhaps the most important thing for anyone looking to move themselves or their property abroad is to understand that this world is always changing.
Tax laws and treaties, residency visa requirements, opportunities to obtain a second citizenship, documents required to open a bank account, as well as political conditions, values of local currencies and ease of movement… all these things change all the time.
The key to surviving and prospering in the current global environment is to internationalize your life. The best strategy for this is known as the five flags.
I didn’t invent it, but I knew the guy who invented it. He went to “Grandfather” and was last seen Panama City.
The five flags of Grandfather relate to residence, citizenship, banking, property and business.
Not everyone needs to plant all five flags, but the goal should be to plant all the flags you need in different jurisdictions.
Moving to another country and taking all your cash, investments and business activities with you to that new country does not achieve the goal of moving abroad.
The goal is to diversify.
Fortunately, different countries shine for different reasons.
Some are better for banking, some for investing, some for residence, and some as places to incorporate your business. No country gets an “A” rating on all fronts, but some get closer than others.
The five flags are merely reference points, and they overlap. Residence and citizenship are related, banking and property are related, business and banking are related, business and cyberspace may be related. But that is not the point.
The point is that understanding the flag theory and adopting this five flags approach allows you to create a road map that you can use to simplify your life around the very big picture concept of internationalization.
Planting your flags means identifying which country (or countries) works best for your agenda and priorities. Break it. Consider the options flag by flag.
Flag No. 1: Banking
The easiest first step might be to have a bank account in another country. It doesn’t require any action or any major commitment. But it diversifies the risks associated with holding cash.
You have options in dozens of jurisdictions. Don’t get stuck trying to choose the “best” offshore banking jurisdiction. Shop for what’s best for you based on your goals.
Flag number 2: Residency
You may not be ready to move to another country yet, but you recognize the benefits of planting a residency flag in a location away from the coast.
Residency rules can and do change as rapidly and frequently as banking rules, so, as with banking, my strong recommendation is that you take steps towards establishing backup residency in another country as soon as possible.
Don’t wait until you feel you need it. It may take several weeks or months to collect documents to apply for residence in another country. The rules may change during that time.
Flag number 3: second citizenship
An offshore plan can and I would say should also include planning for a second passport. Many people think that a second passport will not be beneficial for them. I say and opposite.
A second passport is an important part of diversifying your life internationally, no matter what your circumstances.
Flag number 4: Protect your property
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’s a defense—protecting what you already have.
Asset protection planning can mean investing your money in property. This may mean forming a corporation. This could be an international trust or an intergenerational insurance product…
Maybe it’s as simple as taking your teenage daughter’s credit card away from her.
Asset protection can be many things, but I will tell you what it is not. There is no plan to avoid asset protection taxes. Many people imagine that working overseas 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 offshore investments and assets because you want to “get rid of something.” In today’s world, you can’t do that and no one looks good in an orange jumpsuit.
Flag No. 5: Overseas Business Incorporation
The key to maximizing the tax benefits of incorporating offshore is to retain profits in an offshore corporation in excess of the Foreign Earned Income Exclusion (FEIE).
Since tax changes in 2017, profits held in a US-controlled foreign entity pay corporate taxes in the United States. This change was disappointing for those of us who were already doing business abroad and who had become accustomed to being able to defer 100% of profits for US tax purposes.
Nevertheless, under existing law, structured correctly, the tax rate can be at least 50% lower than the regular US corporate rate.