Definitions

Perpetual_traveler

Perpetual traveler

The term perpetual traveler (PT, permanent tourist or prior taxpayer) refers to both a lifestyle and a philosophy.

Background

In practical terms, perpetual travelers (PTs) are people who live in such a way that they are not considered a legal resident of any of the countries in which they spend time.

By lacking a legal permanent residence status, they seek to avoid the legal obligations which may accompany residency, such as income and asset taxes, jury duty and military service.

For example, while PT's may hold citizenship in one or more countries that impose taxes based solely on residency, their legal residence will most likely be in a tax haven. PTs may spend the majority of their time in other countries, never staying long enough to be considered a resident.

Rationale

Some PT's are wealthy individuals whose primary motivation is tax avoidance. It is possible for a non-national to live for several months, and in some cases even own property, in many countries without paying income tax. For example, most European countries allow tourists to spend up to three months (and in some cases six months) in the country without being considered a resident or being required to file a local tax return. Similarly, one can spend up to 122 days each year in the United States without being considered a resident -- or being required to file a US tax return. This workaround is appliable only for non-US citizens who are not permanent residents and earn no income in the United States.

In general PT's can, by moving between countries on a regular basis -- be able to legally reduce or eliminate their tax burden. Other PT's and itinerants may adopt this lifestyle for primarily self-ownership reasons, seeking to be free from government authority, interference and "The System".

Five Flag Theory

Perpetual travelers may attempt to organize their affairs around the "Five Flags" theory, arranging for different facets of their lives to fall under the jurisdiction of separate countries, or flags. This is an extension of W.G. Hill's original "Three Flags" approach.

Whether to minimize governmental interference (via taxes or otherwise), or to maximize privacy, the theory proposes that you arrange for each of the following to be in a separate country:

  1. Passport and Citizenship - in a country that does not tax money earned outside the country
  2. Legal Residence - in a tax haven
  3. Business Base - where you earn your money, ideally somewhere with low Corporate tax rates
  4. Asset Haven - where you keep your money, ideally somewhere with low taxation of savings interest and capital gains
  5. Playgrounds - where you spend your money, ideally somewhere with low consumption tax and VAT


The Five Flag Theory although meaningful, is overkill with respect to the way the world really works

  1. Many Caribbean nations and South Pacific Forum states are (so called) tropical resort nations. These nations historically have had such weak currencies (vs the AUD, CAD, EUR and USD) that the VAT argument holds little meaning. These nations have been playgrounds for the wealthy for the past 50 years.
  2. Asset and residence havens can be the same, if you can afford to live there: The Cayman Islands or Bermuda for example.
  3. Only a fool puts their assets and investments in a single tax haven. Use of multiple tax and havens (usually just 2 or 3) has been standard procedure for the past 40 years.
  4. Tax havens themselves are relative, for example a UK national and resident could use Australia (where they would have to have permanent residence) as a tax residence. This was done by a few UK entertainers in the late 1960s to mid-1970s. Australian tax law has since changed and this is no longer possible.
  5. Minor modifications to the Three Flag Theory, something like a 3.5 Flag Theory would suit most of the people that need to live this way and can afford it. Investment and tax havens can be the same, providing precautions are taken with respect to moving money between countries.
  6. The Five Flag Theory also works with respect to inheritance (or estate) taxes. Canada and many other non-European nations have ceased having inheritance taxes. Thus (for example) a Canadian Permanent Residence status (and permanent tax residence) at time of death could save potentially hundreds of thousands of dollars of US estate tax (depending on how the assets are structured). See: Taxation_in_Canada#Inheritance_tax
  7. People can use offshore corporations and trusts (in general) to hold and move their assets (and investments) around the globe. A lot of the 3 Flag and 5 Flag theories ignore this basic work around.

Philosophy

On the surface, perpetual tourists have some things in common with world citizens, in that they see themselves as untethered to any one nation. However, PT's generally seem to eschew the humanistic and utopian overtones of world citizenship. Many PT's align themselves closely with the libertarian or anarchist schools of thought, which advocate individual sovereignty - sovereignty vested in the individual rather than in nation-states.

References

See also

External links

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