Dateline: Warsaw, Poland
I remember sitting in a movie theater in Dublin, Ireland seven years ago and overhearing several locals complaining about the Polish immigrants there. It was like being teleported to the United States and hearing how “Mexicans are taking all of our jobs”.
Being back in Poland is a reminder that life in other countries isn’t bad or scary. But it did remind me of the value of discussing “the great unknown”.
When discussing flag theory and offshore strategies, it’s not uncommon to hear “but I’m not rich… how does this affect ME?”
The truth is, offshore strategies are applicable to practically anyone with a few nickels to rub together. Even if you don’t have substantial income, getting a second passport you may be eligible for can greatly enhance your freedom.
Flag theory is all about the idea that no one government should own you. That would be slavery, and I’m betting you don’t want to be a slave no matter how much money you have.
That said, I want to help explain how the “upper middle class” can benefit from offshore strategies.
Before we get into specific strategies, though, the best way to get started with the money-making and asset protection benefits of the offshore world is to adjust your mindset.
Not to sound like Tony Robbins, but if you have the mindset of those people in that Dublin theater who think Poland, or Mexico, or wherever else is some third world dump, you’ll have a problem believing your money can be safe in those countries or taking advantage of the full benefits of this stuff.
For instance, one of my friends recently referred to my life as “traveling to a new city, staying at a great hotel, talking to some people, buying a nice pair of shoes, then getting on a plane and doing it all over again”.
To him, the lifestyle comes off as rather luxurious. It’s hard for him to connect with such a “lavish lifestyle” even though he earns a very solid income, travels around his home country, and has a great life.
The idea of adding an international element to things is where the disconnect comes in for him… and perhaps for you.
In reality, offshore strategies allow you to live like a king without a king’s budget. Just as Tim Ferriss put forth a new way to live like a millionaire by traveling and enjoying life — all without actually having $1 million — stuff like offshore tax strategies and foreign bank accounts allow you to keep more of your own money.
My self-employed friend in the United States who might earn $150,000 a year likely only sees about $85,000 of that money in his pocket. On top of that, expenses in the United States and many developed countries are high relative to the average income, which means that even the seemingly well-off are income-rich but savings-poor.
If you’re in that category, going offshore can help you tremendously once you understand that even a $500 pair of shoes seems like a drop in the bucket if you could re-claim $65,000 in money you previously sent to the government in taxes.
If you’re an entrepreneur, investor, or high-income earner wondering how to lead an international life of luxury, the most important step is removing yourself from the system that is holding you back.
That’s when you realize that all of the “how to live in Thailand for $138 a month” blogs don’t matter. Knowing how to MAKE money is the most important skill you can have, and if you can make it in the United States, chances are you can make it somewhere else and live tax-free.
With that, here are my top offshore strategies for the “upper middle class” wage earner or business owner grossing $100,000 a year…
1. Become tax non-resident at home
Even if you don’t work online, chances are you can run a good part of your business while traveling or living overseas. My aforementioned friend conducts all of his business on the phone, never meeting his thousands of customers.
He could just as easily be calling his customers from Cancun or London or Bangkok. And when he decides to do that, he can qualify as “tax non-resident” in his home country.
In the United States, that means qualifying for the Foreign Earned Income Exclusion, or FEIE, and earning up to around $106,000 a year tax-free merely by spending most of his time out of the country. (As my friend is married, he and his wife filing jointly could collectively earn around $212,000)
As a US person, doing business in your own name can reduce your taxes, but often not totally eliminate them. If you’re self-employed, you are required to pay Social Security and Medicare tax, even when living overseas…
…however, if you have a foreign business structured properly you can avoid this as well.
In countries like the UK, Canada, and Australia, you can apply to be non-resident for tax purposes and prove that you have no intention to live there.
In some countries, you will need to prove that you have “no intention to return in the future”. This usually means that your move does not have a set return date, such as one that would come from accepting a fixed-term job overseas.
In other countries, you can simply check a few boxes and become tax non-resident. You just have to be willing to leave.
2. Shift your savings to offshore banks
If you save money from a job, or if you run a business and have been banking the savings, it is advisable to move those savings overseas. This is especially true if you run a business because Western world tax authorities are getting more and more grabby-grabby when it comes to levying bank accounts or stealing cash.
While I always recommend compliance with the applicable local laws, the problem is that tax authorities are hiring more people to take the money while cutting back on the people who make sure the money should be taken.
There are far too many stories of business owners having significant sums — even their life savings — taken by some alphabet soup agency, only to be found innocent of any wrongdoing later. If you or your business can’t withstand having all of its cash “borrowed” for a year or two, offshore banking is an excellent way to protect yourself.
After all, the more successful you are, the bigger a target you are.
3. Obtain a legal second residence
We frequently talk about the numerous ways to live abroad: you can be a perpetual traveler bouncing from place to place, you can live in several consistent places each year, or you can live overseas in one place.
Having a second residence in another country not only aids your case for not paying tax in your home country, but it offers a safe place to go at any time. This can be helpful if you are running a business and want to stay in one place most or all of the time.
Couple living in a territorial country with an offshore company and you could be able to avoid taxes anywhere. If you think this is a tool of the rich, think again; I’ve met people in Malaysia earning minimal income from investments in Singapore and paying no tax in Malaysia.
Forget earning $100,000. Even someone earning $30,000 a year — or someone who could create $30,000 in annual business income — could save enough money to cover at least part of the cost of living in one of these countries.
The challenge with many high-earners I meet is that they don’t want to lead the lifestyle of getting on a plane every few days, weeks, or even every month. With the right second residency, you can stay in one place and maintain your zero-tax lifestyle.
Think about what you would do with all of that extra money. Perhaps you would buy some $500 shoes… or a new car… or make a sizable donation to your favorite charity and have an impact on the world.
It’s up to you. When you understand that leading an international life of luxury isn’t about being rich, but merely using the strategies of the rich, you’ll have the opportunity to live more freely than 99.9% of humans ever have.
As your business and income grow, more strategies will become available to you. If your business gets big enough, you can even return to your home country full-time and enjoy a greatly reduced tax burden the same way the guys at Google and Apple do.
Some of these strategies involve intellectual property and other stuff that are not likely to be part of your current business or employment at the low-six figure level. However, the best strategies are often the most simple, and if you’re willing to “get paid to travel the world” as I say, you can get started as soon as tomorrow.
For now, taking the first step is the most important thing to keep more of your own money and live the life of your dreams. If you’re interested in taking that first step, we can help. Just contact Nomad Capitalist here.