Q&A on Multiple Flags

We receive quite a few messages from our readers – questions, comments and feedback about our service. A few days ago, I received the following message:

“I’m brand new at this [internationalization] and not quite sure where to start.
There is so much to do and it is all overwhelming. Any suggestions?”

It’s a common question, so let’s start with the basics: determining which “flags” you need and where to plant them.

The Flags approach was a model originally coined by investment expert Harry Schultz decades ago. There were originally three:

  1. Have your citizenship in a place that taxes on income earned within the jurisdiction itself.
  2. Structure your businesses and investments in low to no tax locations.
  3. Live as a tourist in places that will value you rather than attempt to harm you.

The premise was to limit your risk through political diversification. The same way that you don’t pile all your investments into one vehicle in case something goes wrong, Schultz reasoned that it was vital to do the same politically, if for no other reason than to avoid ruin at the hand of some malicious force sometime in the near or distant future…

Over time, the number of “standard” flags was expanded. Nowadays, there are five that commonly come up:

  1. Passport / Citizenship in a country that doesn’t tax money earned outside the country.
  2. Legal Residence in a low or no tax jurisdiction.
  3. Business located in a low or no tax jurisdiction.
  4. Locate your assets in a jurisdiction with a solid rule of law and preferably with low or no tax on capital gains, dividends and interest.
  5. A place to actually spend time in that hopefully offers low consumption taxes.

Of course, that’s not all. As the philosophy is to limit risk across jurisdictions, one can conceivable “diversify” anything he feels is at risk – e-mail privacy, the threat of an Internet web site being shut down, interruption of critical business services, multiple businesses in multiple jurisdictions, multiple asset structures in multiple jurisdictions, multiple passports in multiple jurisdictions, multiple properties in multiple jurisdictions etc etc etc.

It can get complicated really fast. I can understand how it might seem a bit overwhelming to someone new to the game. But it doesn’t have to be.

In fact, it can be downright simple: Just plant the flags most relevant to what you want to protect.

If you want to protect your assets and have limited assets, start with an overseas bank account. Or move some gold overseas (or purchase in another jurisdiction right off the bat). If you have some means, bring an expert in to structure you properly to legally minimize taxes, as well as take care of future planning.

If you are concerned about being a target based on your citizenship, start the process of acquiring a second passport.

If you are concerned that all hell might one day break loose where you live, establish a bolt-hole in another jurisdiction – outside your home country or if your unique situation doesn’t allow it, in some rural area removed from the general population.

If you are deeply concerned about Internet privacy, diversify your e-mail account with services like Hushmail or Internet traffic through services like Cryptohippie.

You get the idea…

Ultimately, though, it all comes back to you. Your goals, your priorities and your unique situation. Age, income, current assets, family matters, and of course your preferences all play a part.

Internationalization experts often share valuable information that you would be wise to consider. However, at the end of the day, you need to figure out what’s most urgent and start there.

It’s hard to be overwhelmed taking it one step at a time.

Tags: second passport, offshore banking, internationalization, foreign residency,