Flag theory strategies for expats to break free from the taxman

Last updated: March 26, 2017

Dateline: Kuala Lumpur, Malaysia

Nearly five years ago, I was engaged. And with only a few weeks before the wedding, we decided to call things off.

Anyone who has been through such an experience knows just how much is involved. Heck, any breakup is difficult and comes with a lot to deal with. Breaking up with the person you expected to spend your life with especially so.

Starting a business when you’re twelve years old makes you think you’re pretty mature. I realize now that wasn’t necessarily the case. There is always room for growth.

It was hard to let go.

But this isn’t about me. It’s about you, and specifically what is holding you back as someone looking to plant flags around the world. Allow me to explain.

Whether you are already living overseas, or you want to leave your home country but haven’t done so yet, chances are you may be holding on to some elements of that country that aren’t good for you or your financial situation.

Of course, this is the kind of stuff I help over-taxed entrepreneurs with every day in my strategy calls.

That home country could be the United States or anywhere else. I don’t say “cut ties” out of anger, but merely as a logical approach to moving on with your life when you’ve decided it’s time to leave…

The same way that I had to slowly move on after my engagement ended, and the same way you’ve moved on after relationships in your life have ended.

If you’ve decided that the place you were born is no longer for you, it’s in your best interest to remove as many elements of that place from your life.

In the same way that I can look back on my time with my ex-fiancee and remember how I enjoyed our time together, you can appreciate certain things about where you come from.

If you believe, as I do, that the western world in general and the United States, in particular, is largely headed in the wrong direction, then your best bet is to get yourself and your money out.

There’s no need to belabor that fact; if you’re reading this, chances are you realize that you don’t need me to convince you that there is something holding you back in the place you come from. As is the case with many people I help these days, you might love your country, but their high taxes are stopping you from expanding your business. Or perhaps you just feel happier living overseas.

But one of the challenges I see with so many expats and expats-to-be is how they cling to their home country in so many ways.

If you’ve already moved somewhere else, chances are this is effecting your happiness. The same is true if you haven’t moved, but chances are in that case it’s also affecting your ability to get off your ass and actually take the plunge.

Allow me to share a few examples:

Reading the news

Particularly if you’re a US person, you should know that the news in your home country is nothing but propaganda. I’m no communist, but calling Fox News real “news” is like calling Kool-Aid real juice.

I understand there is some nostalgia in keeping in touch with what happens where you come from. However, if that place is no longer your home, what do you care what happens there? As a Nomad Capitalist, you should realize it’s not your job to fix that place, nor is it practical. If you don’t like things, you should simply pack up and leave.

What purpose, then, does it serve to sit around reading the Drudge Report and getting your blood pressure up over something Hillary Clinton said, or the latest executive order? While US citizens are tax slaves no matter where they live, nothing in the news is going to change that for better or for worse.

Keeping old bank accounts

Do you need that old checking account that you never use? I had to fight with a US bank to allow me to close my account remotely, but they finally gave in. If you’re living and running your business in another country, what do you need a “home” checking account for?

You’d be better off finding a way to do all of the same things with a foreign account. It’s not like Chase or Bank of America or RBC are the world’s best banks.

If you have local investments or real estate that pays your home country account, so be it. However, if you’re trying to distance yourself from the tax system of your home country, why own stocks, real estate, or other investments there either?

Keeping old credit cards

I’ll be the first to admit I’m not perfect; a recent offer of five free nights at any Ritz-Carlton just for getting a piece of plastic was too tempting to pass up. If you have a great credit score there is no shortage of credit card companies willing to roll out the red carpet for you.

That said, a good offshore bank can at least offer you a good debit card with some of the benefits of your high-level credit card. There are plenty of semi-private banks and Premier accounts that have cards that can compete with your home country credit cards, sans the annual fees.

Maintaining credit cards in your home country is a sign you haven’t really left. It could also be construed by some tax authority as an indication your living overseas is just some “tax evasion” scam. In fact, the United States is one of the only developed countries that is not using your credit cards against you as evidence of tax ties there.

On top of that, most US credit cards won’t allow you to pay via wire transfer, meaning you need to have a US bank account or a good offshore account that offers US dollar checks that you can MAIL in to pay the bill.

Having credit cards in your old country is a small infraction. Unless you have a lot of small infractions, it may not be a big deal. However, you should at least take a look at what cards you can cancel, especially those cards that don’t suit your expat or perpetual traveler lifestyle.

Keeping an old car

Do you own some asset like a car or a boat where you used to live? Do you tell yourself you’ll return to use it one day… or do you do what I’ve done and let your friends use it for free because you’re too sentimental about selling it?

One of my friends from Europe told me that owning a licensed vehicle in his country makes it nearly impossible to become non-resident for tax purposes. The government where he’s from figures if you need a car there, you must want residence there, and they ought to be able to tax you.

Personally, I’d much rather NOT have a car, especially in some western country where a necessity like a car is taxed to high heaven and brings all kinds of potential problems from parking tickets, traffic tickets, and other police revenue generation.

Keeping an old apartment or home

I’ve shared why I sold my home and all of the uniquely American issues that came with it. Even for someone who dislikes the US as much as I do, there are still rare moments when I think “it would be nice to have a house with a pool in the backyard again”.

Owning real estate where you’re from can potentially have adverse tax consequences. If you rent it out while you’re gone, you have taxable income that no tax treaty or the Foreign Earned Income Exemption can wipe away.

Even if you let family stay there for free, you’re often required by the local government to report it as a rental and deal with paperwork and fees. And in countries where profits from the sale of a home are exempted when the home was your primary residence, you will end up paying a lot more on any profits by not living there.

On top of that, having a home can be a dead giveaway to the taxman that you really haven’t left.

It’s harder to claim your “bona fide residence” is overseas when you have a place of your own you pay rent or a mortgage every month. And if you believe as I do that western real estate is a worse investment than emerging market properties, you might just lose money, too.