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Expat income, banking, and flag theory

Posted: Thu Mar 01, 2018 5:38 pm
by jacob
Traditional flag theory (look it up) has you maximizing your personal freedom/sovereignty by having your income in one country, your assets in another, and yourself in a third. I'm curious if anyone here has any practical experience with that. It's one thing being a 1%'er or having enough financial clout to hand the problem over to lawyers and accountants. It's another when you DIY. It seems to me that things have changed and there's a lot more clawing and regulations from governments who don't like to lose their best to greener pastures while also wanting to kick their worst, however these are defined.

I'm curious to hear about experiences with running part of their life (income, assets, ...) from another country than the one they live in? Is it worth the hassle? Risk/reward? Complications? Experiences?

Re: Expat income, banking, and flag theory

Posted: Thu Mar 01, 2018 6:27 pm
by chenda
A relative lived variously between London, Canada and Jamaica but her income mostly came from Canada and Jamaica in the form of employment then pension. If I recall correctly there's double taxation treaties in place which meant the income was just taxed once, depending on the main place of domicile in that year. So not quite full flag theory. Don't know if there were any significant tax benefits over the long term, I would doubt it. Main issue was exchange rate variability, and lots of hassle with accountants. When she died the probate was long and complicated. Multi-jurisdictional estates are expensive.

Re: Expat income, banking, and flag theory

Posted: Thu Mar 01, 2018 11:39 pm
very difficult regulation wise. maybe possible at the millionaire level, before that, brute would think it doesn't make sense. especially with FATCA, most foreign banks won't take on small fish any more.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 12:47 am
by RealPerson
I don't have anything to add unfortunately. But I wonder why Jacob is posing the question. Are you that concerned about the US? I have considered flag theory variations, but they never quite seem to make sense. Flag theory does, however, greatly complicate your life. The inefficiencies introduced by flag theory appear to run contrary to the ERE FIRE philosophy. There would have to be a compelling reason to actually carry out such a strategy. Do you know something the rest of us should be aware of?

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 2:32 am
by Solvent
I only briefly heard of flag theory once before, and it was probably on this forum. I think in effect my life kind of qualifies as flag-theory compliant at the moment but it’s more by accident than by design. My taxation situation isn’t replicable by DIYers; I think I’m an edge case in a sense. But I have my assets split between Australia and Switzerland, I live in Ethiopia currently, and although my income is reliant on my work here it certainly doesn’t come from here.

I’m still without doubt a wage slave, so the creative ideas around setting up business accounts in tax havens don’t really apply to me. Not that I wouldn’t look into it, if I were going to start a business.

I have given some thought to how to minimize taxation in the future but to be honest, at the level of assets I’ll likely have, I don’t really think it’s worth the hassle to go full flag theory here. I’d suspect that for most EREers it’s probably the same. The taxation savings you’d need in order to justify the registration and accounting costs would obviously need to be suitably large. The jurisdictions I currently have assets in make it difficult to avoid withholding tax, so I suppose I’d need to look at setting up brokerages in Panama or something – I haven’t investigated.

Definitely the citizenship thing is a hassle, too. I’m not a United Statesian, for those of you that are it’s surely way harder. When I was dealing with Swiss banks they definitely ask you in a very concerned voice if you’re an American citizen or permanent resident – FATCA makes things difficult for them. I would love to have some kind of citizenship that allows me to travel freely in Europe, but I’m not sure that I’ll be able to get to that point. I know it’s possible – but whether it is worth the effort, I’m no longer sure. While permatravel fascinated me only a few years back, now that I’m a little older and have a kid I’m not sure that it’s really something I’d be good at.

On the level of personal experiences, I do find my current situation kind of complicated. Particularly the part about moving around and updating addresses. A few recent small examples – one of my banks will not allow 2-factor authentication with a non-domestic mobile phone number. This is not my primary bank account so it doesn’t cause me real problems, but it’s a little frustrating. Another of my banks still has my old address – fortunately I’m on good terms with the previous landlord, who scans through any mail received – of which there’s almost zero. I effectively can’t receive mail here in Ethiopia (I have an address, sure, but my hit rate for receiving expected international mail is something like 25% - that’s not counting the mail I wasn’t expecting). When one of my debit cards expires later this year, this will be inconvenient. I will need to tell the bank NOT to post a replacement, and ideally will pick it up next time I travel back to the relevant country. Also, given the mail problems, proving residence here is a hassle – all the utility bills (a common method of proving address) remain in the name of the property owner (not the tenant), not to mention I’d need them translated from Amharic. That’s another minor cost you can build into calculations – if you want to prove residence in, say, Serbia, to your taxation authorities or banks in another country you’ll need to get documents translated and perhaps legitimized by a regulated agency. It’s not impossible, but it’s another small cost to tack on to your other administrative burdens.

I’m sure some countries do better with having everything online, but there are certain things that may, on occasion, require a telephone call. An international telephone call to, say, a bank, who will put you on hold for thirty minutes, is a costly pain in the arse, especially when you’re placing the call from a different timezone (perhaps at 5am, because it needs to be in the business hours of the home country).

I guess though, the idea of putting significant effort into these arrangements it that you can optimize enough that the hassles I describe won’t be your hassles. So… get researching!

As a concrete data point for you all, the bank I was initially with in Switzerland charges something like 25 francs per month to people who are not domiciled in Switzerland (with a few exceptions for geographically close countries). So I switched banks a few months prior to leaving – it’s possible to get a lower cost, but it still does cost you something. Of course there are also different rules for the multi-millionaires out there, aren’t there always…

To summarize – with some effort going full-on flag theory is definitely doable, and pretty cool… But it’s only for certain people. Will you forgive me for just throwing out a guess? The breakeven point, if you do it efficiently, is probably not that far past 1.5 million in assets, but of course varies hugely on the dollar value you place upon your time invested in getting it set up and dealing with the ongoing administration of it, and whatever citizenship you currently hold. While the people who usually do this sort of thing probably wouldn’t include it as a ‘cost’ on the accounting side, an honest EREer should probably keep a tally of the cost of the periodic international flights they will need to undertake in order to maintain their accounts/businesses/residences in various jurisdictions. Flag theory coincides with the lifestyle of permatravel – if you want to stay rooted to a given spot, that will increase the costs of doing flag theory – since you’re going to have trouble convincing anyone you’re a tourist, or that you don’t have links to one given jurisdiction.

Also, just as something interesting to observe – I googled flag theory, clicked a few sites, and is it weird that a lot of these places discussing flag theory seem to emphasize the importance of there being attractive women in the location where you live? I guess they know their audience…

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 10:25 am
by RealPerson
I have considered some form of flag theory, as I hold 2 passports. Although I don't get much direct benefit from having 2 passports, it does give some peace of mind that I have options for living and travel.

With worldwide taxation, FATCA, the requirement to disclose ownership of foreign bank accounts, and the exit tax to relinquish US citizenship, the loss of freedom is disturbing. The US successfully uses its dominance to force other countries into compliance with its laws. If you comply with US law, the government knows exactly where all your monetary assets are anywhere in the world, including account numbers. You cannot know how robust your strategy is until it is tested.

The unclaimed safe deposit boxes and bank accounts in Switzerland after WWII demonstrate that many jews in Nazi Germany tried to implement a version of flag theory. Sadly, for many the theory did not work. There is nothing more important than physical safety, so maybe having a second passport is the most important piece of flag theory to implement. Millions in a Swiss bank doesn't do any good when you are locked up in Auschwitz. That seems far fetched in today's world. But when you consider climate change, peak oil, the unsustainability of modern agriculture, the various enormous financial bubbles and the depletion of natural resources worldwide, what seems implausible today could be a reality tomorrow. :idea: I need to go and check that my passports are current.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 10:41 am
by 7Wannabe5
I think maintaining 3 BFs; one in a Red county, one in a Blue county, and one in Canada, would be easier and more resource conservative. I could actually do it on a bicycle if I was in slightly better shape.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 11:24 am
by JeanPaul
Since I'm ERE, my income is too low for taxes, so it doesn't really matter. I've done all my banking/credit cards/investing out of the US while living in other countries for the past five years. Have a European bank account, too, but rarely use it. US finance is just more advanced from a consumer standpoint (except for ATMs, where it's the only country that charges!).

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 11:53 am
by Chris
I agree that it's probably not worth it from a convenience or financial perspective for most DIYers.

But for starting a new business, I would consider Estonian e-residency. With no tax assessed as long as the profits stay in the business, it seems like a more beneficial way to build a business for nomads (or nomad wannabees).

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 1:27 pm
by Mister Imperceptible
I am a US citizen and have been wondering about the feasibility and benefits of applying for Italian citizenship via jus sanguinis. Access to Europe. But I’m wondering if because of FATCA if South America or Asia are superior alternatives. Because of jus sanguinis that may just the easiest option.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 2:26 pm
by RealPerson
Mister Imperceptible wrote:
Fri Mar 02, 2018 1:27 pm
But I’m wondering if because of FATCA if South America or Asia are superior alternatives. Because of jus sanguinis that may just the easiest option.
I think FATCA purely involves banking/finances. It does not involve citizenship as far as I know. Italy offers a great lifestyle but financially it is a disaster. I think it is unlikely that any European passport would bail you out if the wheels come off in the US. Still, I like having my EU passport and would encourage you to pursue yours. I like the fact that I can travel with another passport, so more incognito 😎. I have saved hundreds of dollars by avoiding visa fees. Many countries have retaliatory visa fees for US citizens because the US charges high fees. Plus, the US is not always popular in the world, so a non US passport may prove beneficial.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 2:37 pm
by Mister Imperceptible
From a pure lifestyle standpoint, I agree. I wouldn’t be going to Italy to work, I would bring assets to Europe to diversify. If the US falls apart, there’s likely nowhere I can go anyway, so this has more to do with personal sovereignty than it does with planning for an apocalypse.

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 8:47 pm
by bryan
Something something crypto-currencies and online businesses.

I don't have any experience since my previous European employer (remote work) simply incorporated in the US and hired me into that. There are some crypto-exchanges that serve as a poor man's forex and foreign bank account, granted you are supposed to self-report that kind of thing and is probably riskier than holding your cash at US Vanguard.

I have a freedom-loving friend from Montana that works in Australia for a Switzerland corp and does a lot of business in Ukraine. I've been meaning to poke him about implementation details and what he has seen amongst his clients..

Re: Expat income, banking, and flag theory

Posted: Fri Mar 02, 2018 11:18 pm
by Paula
jacob wrote:
Thu Mar 01, 2018 5:38 pm
Traditional flag theory (look it up) has you maximizing your personal freedom/sovereignty
What do you mean by personal freedom and sovereignty? What do you hope to accomplish?

Re: Expat income, banking, and flag theory

Posted: Sat Mar 03, 2018 3:08 am
by almostthere
In my experience, the points raised by Solvent ring true.

One, countries tax in very different ways. You could benefit if you were thoughtful.
For example, in the country of my residence taxes employment income. For those not employed,
it notes your bank and credit card balances, if they pass a certain threshold, you must file.
Otherwise, no worries. I do get stuck with property taxes though.

Two, addresses matter. You simply need an address to prove to your broker who you are.
Finding a way to maintain an address is tricky.

Three, phone numbers matter. As we have seen, its hard to get to assets now without an sms.

Four, know your customer laws are everywhere. I have had demonstrate the provenance of my assets
and it is scary to turn over such data. Related to this, demonstrating employment may also arise. I am not even sure we could have rented an apartment with 'proof of income' upon arrival in the country.

Five, international wire transfers are scary. The system is antiquated and opaque. Related to
point four above. Banks will be in your business if you move anything above $5k.

Six, all that said, the US dollar is still king. I would not want my assets anywhere else - for now.

Now onto some theoretical ideas that I think may change some of the above.

Crypto may radically challenge the current situations for points four, five, and six. If I could have used BTC to move money for a recent apartment purchase, it would have been so much less stress inducing. It won't be long before BTC makes it way into more and more international real estate purchases. The old system just sucks.

Also it may be that as crypto develops, we'll be able to tokenize more assets. I imagine that soon enough in a country that allows crypto as currency or at least has forward thinking regulations, we may see some large REIT type situations tokenized. Even just getting Gold or Oil tokenized will be a big step in people being able to confidently hold larger amounts of assets in the form of crypto without the tyranny of know your customer and US financial regulation.

The really wealthy and the fintech entrepreneurs are going to go to the countries that want them. If the dollar were to lose its place, many wealthy people would begin to move elsewhere because currently the dollar hegemony is critical to them maintaining their purchasing power. There are no shortage of
powerful actors who love to see the rise of a dollar challenger and with crypto who knows what could happen.

Please note I am not a prepper or radical in any sense of the word. I just see the world changing. Nothing lasts forever.

Re: Expat income, banking, and flag theory

Posted: Sat Mar 03, 2018 1:00 pm
by jacob
@Paula - I think it comes down to being able to vote with one's feet. Concentrating everything under one flag makes one subject to however the winds around that flag blow. Multiple flags is the analog to diversification when it comes to investments. If one flag fails, the others are still there. In terms of practical experience, I would think perma-travelers would have the most(*). Most of perma-travelers seem to be more of the two-flag variety: Living in one-country (but different ones, often doing visa-runs) but having passport and income (typically digital) from the same country.

(*) It's one thing to know this in theory. It's another to practice it continually. I was globally mobile some 10 years being quite convinced that I could go anywhere at anytime as long as I had money in my pocket. However, after nearly a decade of being static, it feels like my "skills" have gone stale. Or maybe it's just that I have more stuff/commitments/incomes than back then.

Re: Expat income, banking, and flag theory

Posted: Sat Mar 03, 2018 2:11 pm
by Paula
@Jacob, you may find Brooke Harrington's book Capital Without Borders interesting. She is a sociologist who took the STEP certification courses in order to gain access to the closed world of personal wealth managers.

Re: Expat income, banking, and flag theory

Posted: Sun Mar 04, 2018 1:11 pm
by Lillailler
I emigrated from country A to country B to a few years ago and took out citizenship in B as soon as was legally possible. This actually gives me the right to live in three other countries, so I now have five different countries I could live in if I wanted to.

About half my assets are still in country A and the rest, as well as my employment /self-employment income, is in country B. I did not want to move everything from A to B in case in the future I changed my mind and decided to return to A, getting landed with two sets of transaction costs. In addition, splitting assets in this way gives me a natural hedge, although in these days when you can globally diversify your investment portfolio the hedge is more about political risk, that politicians do something stupid which strongly reduces the quality of life, or that they impose excessively high taxes. I have always tried to hedge by having more than one bank, more than one brokerage account, etc.

I would be very reluctant to move country again, but I have that option if it comes to it, which I guess is the whole point.

In terms of taxes, double-taxation treaties mean that I pay taxes on everything to Country B's government, and nothing to Country A's, but there is extra paperwork involved. Also country B has no estate taxes, so my heirs will benefit even if I don't!

Re: Expat income, banking, and flag theory

Posted: Fri Apr 20, 2018 3:32 pm
by pk+
I read only theory, but in Europe it is quite nice:
"center of living interests" matter. If you are living in one country longer than half of year, then you could sell all your stocks and pay capital gains tax there. CGT could be like 19-33% in some countries, and 10% in other.

Such move could "yield" something similar to one year wage, depending on assets level. So, especially worthwhile for families willing to travel slowly.

Re: Expat income, banking, and flag theory

Posted: Sat Apr 21, 2018 1:14 am
by Seppia
A very underrated asset while moving across countries is an HSBC account.
They are the only real global bank that I know of.
Example: I had an Hsbc account in Europe prior to moving to the USA, when I moved there I just went to an Hsbc branch, told them about the other account, they made a couple clicks to verify, a call the next day to the european branch, and voila I had a credit card with a $10000 (not a typo) limit.
I had some colleagues move to the USA, people way more senior and with likely way more assets than me, and they had to start with a $500 credit limit as the other USA banks would not “recognize” their credit history and assets abroad.

Keep in mind that when this happened I was 29 and very far from being an attractive customer, I maybe had 30-50k worth of assets (don’t remember exactly).

Plus if you have multiple accounts with them and hit a certain balance (which is high but not absurd at all, I think it’s around 70k), you are allowed to move money internationally across different HSBC accounts at no cost, except for the currency exchange spread obviously.

When we moved back to Europe this proved to be an essential tool, we moved much more than 5k and never had any issue. At a certain point they did ask why we were moving so much money, but it was just a matter of answering the phone and sending over the hiring proposal from my Italian company and they were fine.
I think their limit is 50k per month.