VOICE OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
DERREN JOSEPH:
So, I guess, if I were to look at it, there’s a continuum between wealth creation and wealth preservation. And, you know, there are people who, wherever they are in their personal financial journey, they’re on the side of wealth creation and there those who are on this moving towards wealth preservation, you know, wherever you are in the continuum now within the last few months, I think I’ve spoken to more newly-minted millionaires than any other time in my professional history.
Thanks obviously to crypto, but also, you know, people have invested in other things, particularly technology-related businesses and have done particularly well. And it seems counterintuitive given what we’re going through right now with this pandemic, but there are people that have coming out on the right side. You know, I think it was last week. It felt almost like a joke. It’s like every single day I’m jumping on zoom with somebody who’s saying, you know what I’ve made, I’m sitting on one point, whatever 3, 5, 9, 18, $25 million of gains. And the one they’re talking to people to try to get off, to explore options, how am I going to deal with this?
You know, they’re walking away from fantastic jobs, high six figure jobs because this momentum is really working in their favor and they’re thinking, okay, how can I protect what I’ve earned? I mean, obviously take it off the table and, and diversify and whatever, but they’re looking at different options geographically in terms of jurisdictions. Now, I think there’s, there’s the obvious stuff. Kind of like, you know, there’s a lot of press coverage on Cal exit for example, people are leaving California to go to Texas or Tennessee or people leaving New York to go to Florida.
But outside of the US context, even within the US context and outside of US context, people are looking at different jurisdictions in more meaningful way than before. And I’ll perhaps explain later on. So let me share my screen. I just have a few slides that kind of capture some of the ideas that have been bouncing around in my head as I see things unfolding. All right. Yeah. So, you know, you have to quote the man, you kind of have this conversation without acknowledging, so right. To begin the conversation at diversification. But again, yes, we think about asset classes, but I want to promote the idea.
I want to suggest, I want to plant a seed in your mind, even though this doesn’t make sense today, the seed will be there. And at some point, in time, it may manifest in a more meaningful way for you. So, the idea is no single country’s perfect. And we know that a country might be good for banking or may be good for certain types of businesses, but tax wise, it may not be the most tax efficient in terms of the quality of life that you’re looking for for, you know, it may not be giving you what you’re looking for, but you know, so no one country’s perfect. So, the idea is to create a portfolio of residencies and citizenships that expose you to the, the qualities that you’re looking for.
So, this obviously is nothing new. There’s a guy when you explore, not the literature, but the debates or the discussion around this, invariably, you get hit with something called flag theory. And now I know that for those of you who are based in Singapore or Malaysia, and in certain European countries, there are businesses that have borrowed that name and incorporated using that brand name. But as far as the law or legend has it that the term was developed in, I think in 1930s and 1940s or whatever by this guy called Harry Schultz.
And he used it to describe he, he came up with three flags. So, the one on the left when you’re looking at it on your left. So, he started off discussing three flags. But to me it isn’t meant to be prescriptive. The principle is that you don’t have all your eggs in one basket that you pick jurisdictions that work in your favor, depending on what you’re trying to achieve. And you plant a flag in each of those. So, the most recent international incarnation of this has been what you see on the right where it has evolved from three to seven flags, but you know, it doesn’t have to be that.
So, but at the very least, when people are having this type of conversation, it will be, you know, wherever you’re born. So that’s your citizenship, but it may be where your resident, depending on again, this, I, you know, reminding you that this perhaps makes more sense for people who are on the wealth preservation side of their financial journey, as opposed to the wealth creation side. So, you, on the wealth preservation side, you may be able to run whatever business you have remotely, or you have investments in different jurisdictions. And that sends you want to be somewhere that offers residency taxation, residence-based taxation, were so like Singapore, Malaysia, Hong Kong, where you only tax the income arising from within those jurisdictions.
Then that is a sharp contrast to you, US, Canada, Australia, New Zealand, most of the EU where ordinarily there are exceptions, I knew, but ordinarily once you are a tax resident and the average OECD nation, or the average wealthy nation, you will be subject to tax on your worldwide income, but there are jurisdictions that allow you to legally avoid that. And if, if you pick really well, you can legally avoid capital gains tax as you can in Singapore and Hong Kong Malaysia, in terms of offshore company formation.
Again, this is a function of the nature of your business or whatever, but there’s some jurisdictions that make it quite easy and they give you attractive options in terms of company formation, in terms of banking, for those of you who have done business in different countries, you know, it’s not necessarily company formation, but banks can be a real headache and banking, especially if you are having to do business in jurisdictions with exchange, rate controls, such as Indonesia or in the Caribbean. I think I mentioned Barbados recently and so on and so forth. And of course, moving up to the seventh flag, I wouldn’t bother to go through each of them because they’re, self-explanatory, they’re digital assets.
And in terms of, for those who, especially into crypto, there are some jurisdictions that are more accommodating than others. I mean, you, you may think of, well, yeah, Singapore doesn’t have capital gains tax, but depending on how it is, you manage your crypto. And I have clients that yes, they buy and hold, but I have clients that are active traders and the what, what is perhaps not well understood is that the law, the rules, the tax rules are different. So, if it is that you are deemed to be by the tax authority to be a trader, rather than an investor, that’s a different conversation.
So, there’s no longer tax rate in Singapore or crypto Haven like Portugal, you know, a lot of people flock to Portugal would that promise, but yes, it’s crypto friendly, but if you’re a trader, you’re going to be taxed, it’s going to be subject to Portugal, corporate tax. Like most of Europe, corporate tax is not very low. So, moving on black Swan events for those, I mean, it’s hard to imagine, but within the not so distant past the marginal tax rate in the United States was pretty high. It went up to 94%, you know, 75% was the average for quite a considerable period of time. Going great depression, going into the war period and so on. And of course, well, you know, the, the idea of gold confiscation that is I’m sure everyone is familiar with that because as people flight move to safety, move to the safety of crypto and precious metal levels, one of the sales pitches that you would hear commonly used as the reality that it is plausible for the government to pass it and rules to make ownership or control of certain types, certain asset classes difficult, if not illegal.
And I think within the chat group, there was some recent discussion over what’s going on in India, for example, crypto and other jurisdictions as well. And including China and as, as jurisdictions for whatever geopolitical or economic reasons they either are law crypto, or they would prefer that their citizens or their residents use their own crypto as in crypto that has been issued and authorized by the, by the, by their central banks. And yeah, you know, the, the pandemic, how many people were really caught out. I remember when it first had, it was hundreds of thousands of people were locked out of Australia when Australia closed the borders. Or for me personally, I was on a three-day trip to Indonesia for business, and then suddenly Singapore closed. And I could not get back in now that again, that has implications to access to wealth. Fortunately, Singapore understands that it’s a wealth Haven. So even in the midst of the lockdown, those engage in financial services with deemed an essential service. So, you know, those who work in the, the big gold falls under shiny and the wealth management businesses and whatever they will allow to continue, which is a good thing. But every jurisdiction was as followed thinking and progressive as Singapore.
So, some people were caught out, so I’ll stop there because basically I think we, we get the idea again, for those who may be at the stage in their personal financial journey with this still on wealth acquisition or the growing their wealth, perhaps not quite yet, but still the seed has been planted, put it in the back of your mind and pick it up and run with it later on. Would it perhaps make sense, but for those who are at the stage where, you know what I’m sitting on a decent nest egg, and I want to try and figure out, okay, how can I manage this?
How can I present? How can I defend this in a way that works for me and the way that works for my family? And I cannot think I’m sure you guys would agree with me. It’s hard to think of any country right now that is not looking at increasing taxes as a way to plug the hole created by the recent economic and health challenges. That that’s is very real. And for those in the U S of course, certain States are looking at a wealth tax as is the UK. I think the UK is looking at a one-off well tax and, you know, things like that. You know, if it is you’re on a salary, that’s one thing.
But if you’ve retired, you’ve invested well, and you’re sitting on a nest egg, the idea of your wealth being double taxed, or perhaps like in the case of those countries that do have a wealth tax going like Spain, it’s your wealth is being continuously rooted by not just inflation, but by a wealth tax every year. And once upon a time that was farfetched. But now not so much because governments are really desperate, the holes in their balance sheets that need to be plugged. So that’s where we are. Any thoughts? Any questions?
GUEST:
Hey, Darren. I guess the biggest questions always relates to taxes, I guess, specifically, in regards to where you have your assets, where your, where your domicile and potentially what are the tax implications for having a wealth distributed in, in many different countries. So, you know, I’ll let you comment on this, but I suspect it’s based on where you’re deemed, where your tax residency is defined as to how you would then have to declare potential gains realized unrealized in the various jurisdictions. If you, if you could comment a little bit more.
DERREN JOSEPH:
Yeah. So, it is a real Pandora’s box and that different countries, different jurisdictions look at things differently. So, for example, if you are deemed to be domiciled and domiciled, again is a concept that’s not normally defined by any tax code, but it’s more or less better understood using case law. So, we’ve relied on the courts to help us understand what domiciled means, but just keeping it very top line and very, very simple. It it’s more like a concept around intense. So where, where, where is it? Do you have your closer connections? Where’s your center of life? Where, where do you intend to retire and pass away after even though you, you’re working as an X-Box, you’re traveling all over the world, but where is, where is it you truly considered to be your home? Where’s your heart? You know, again, it, it is, it seems to be quite abstract with that. That’s essentially what it is. And depending on the jurisdiction that you’re exposed to, for example, the us, or you came, you have for the, I mean, to put it crudely, you have debt taxes, you have, you have inheritance taxes, you have a state taxes to consider, and that has implications as you try to accumulate wealth, because for many of us who have families, this is about the kids. This is about creating a springboard for the next generation. And even if you’re not thinking that far ahead in, in the case of the US just as an example, or even again in the UK, because I guess being a former British colony, the laws are not too dissimilar. Even by giving a gift, it could be, it could have tax implications. So, and depending on how you hold, whatever your investments may be, you may be taxing unrealized gains, depending on which jurisdictions you may or may not be intentionally unintentionally connected with.
So, I guess stepping back from the minutia of domiciles and the various taxes that may apply, I think more so than before, we have an opportunity in that, you know, these tools where the preserve of let’s say the 1% or the elite, they always had the ability to pick the jurisdictions, work in their interest. And that’s just the way it’s always been. No, because of the various residency programs and citizenship by investment programs.
Now it’s open up to people of less say more modest means, you know, from high six to seven and eight figures, they, you know, anyone can basically assuming that you are at the stage where you’re not really required to be in a specific location for your job. You can create a situation where you declare residents or even declared domiciles in a jurisdiction that, that works for you. And again, one size doesn’t fit all. It really depends on you. So, what I would suggest anybody do is think about, well, what are your objectives, personal and business wise, what it is you’re really trying to achieve. And, and again, I know this is for those who are at the stage where, okay, I, I’m a newly minted Melania. I am sitting on 10, 20, $30 million of investible assets. And yeah. Okay. So, I like where I am. I want to keep hold of it. And then you risk. Then you do some sort of risk assessment. Okay. Given my presence situation, I I’m a Canadian citizen and I’m sitting in Toronto. What are the implications of that? From a tax perspective? Obviously, Canada is one of those jurisdictions. That’ll tax your new worldwide income taxes are pretty high.
Am I comfortable with that is maybe I am, maybe that’s okay? Or maybe I’m not. Maybe I want to explore my options. And if it is that you, you see that, okay. I want to explore options that allow me to more tax efficiently, invest in a certain asset class or to more easily pass wealth on to my children or whatever the case may be. Then you have a gap that you need to be filled, and you can sit with whomever. You can Google to be fair. Everything is freely available online. Nothing is a secret anymore. And you can identify jurisdictions that you are interested in, that you wouldn’t mind spending time in. You wouldn’t mind setting up, shop in and see whether they, they work in your favor and they give you what you intend to achieve. So, what, what people do with me is that they would have been doing that day. They’re sitting on a certain number of a certain quantum of assets, and they’re no longer tied to a job. You know, I’m seeing people right now walking out of some really well-paid jobs by choice, because they are doing so well with their investments. So that’s, so they have achieved the freedom that they want. They have looked around the world, they spend time looking at YouTube videos or whatever, and they’ve narrowed it down to some jurisdictions that they enjoy, spending time in. So that’s for them personally. So now they’ll come to someone like me or whoever and ask the question, well, okay, this is my situation. This is who I am, how, and these are my objectives. I want to continue growing these different asset classes as they are right now. And I want to enjoy sunshine. Oh, I will. I enjoy skiing, winter sports, whatever the case may be. And these are, I’ve been traveling a bit, and these are the, or I’ve been looking at YouTube videos, and these are the jurisdictions that interests me now, given my interests and given my objectives, you know, what are your thoughts? Would they help me? Am I heading in the right direction? So, that’s it essentially. And then take action.
GUEST:
Okay. I know one of the challenges about opening up a financial account in, in any global jurisdiction is I think it’s somewhat defined by your residency at the time. You know, it’s, it, it’s very difficult for someone to come into Singapore and just naturally open up a bank account, you know, their specific requirements. And I’m pretty sure that’s applicable to different countries around the world. What is some of the options that are available to make it easier for number one, to open up at minimum, a bank account, potentially, a brokerage account, a trading account, even though you’re not considered a residence, a permanent residence in that jurisdiction.
DERREN JOSEPH:
That’s a good question. So, because as everyone is aware, you know, for the past decade or two, I think most people have lost track of the number of scandals, you know, the Panama papers and the paradise papers and the whatever. So, banks have been drawn in sometimes unfairly, to be honest with you and being accused of money laundering and facilitating tax evasion and stuff like that. So, the bands on the back foot and they’ve been thrown in the deep end, in terms of regulation was jurisdictions themselves have been more heavily regulating banks. And then on top of that, you have on the OACD level, at least at the international level, you have agreements like factor the financial contracts compliance act, or the automatic exchange of implementation, or the common reporting standard.
And so, what all these do is conspire to just give banks a hard time so it’s not. So, you know, everybody has problems and it’s not personal. It’s just the environment in which we now function. What do you do? And that’s where having the portfolio comes in. So yes, landing in Singapore and asking to open a bank account, and the bank will be raising an eyebrow. Like why, why Singapore? I mean, they do it. I mean, don’t get me wrong. They take, but the minimum balance is going to be on the higher side. And the onboarding process is going to be more rigorous as opposed to someone who’s a legal resident of Singapore or the UK or whatever the case may be.
And that’s where having the portfolio comes in. So, because you don’t expect, then those of us who believe that the cycle of lockdown and reopening, it’s not going to stop anytime soon, if you look at, and let’s say again, I want to put this in a slightly historical perspective. So, I have a client who is Italian American, and, you know, he’s big into his family tree and his family history and stuff like that. So, him and his family, they traced back to that first relative that arrive at Ellis Island and to New York and the new U S so back in those days. So, this is the late 18 hundred. You just basically rock up to Belize Island. You don’t even need an identity document. You identify yourself and you get some sort of basic medical test sentence, welcome to the United States. And you’re in now fast forward a couple of decades. It was, well, we need to see some sort of identity document something I’d advise yourself. And then fast forward a few decades, you have the concept of a passport to facilitate in stash will travel. That was relatively new. And then fast forward a little bit, then you have visas. So, my point is that barriers to international travel have been getting increasingly difficult. Now we are at a stage where if you look at it right now globally, the whole visa system has been thrown out the window.
You know, people who thought they had a powerful passport and that it allowed them to enter X number of countries, visa free. That’s all gone. You know, some people have been joking that a us passport or a British passport is on par with certain African possible. In that you cannot really go to that many places because of the, the whole lockdown. Now jurisdictions are reopening, like to some extent, Singapore is reopened, but then not opening to the, the level of permission needed to enter and you know, the prequalification or whatever. So basically, non-essential travel like essential travel. It’s unlikely that’s going to return anytime soon. And for those who believe that economic nationalism is growing, you know, we have to try to, we have President Trump, we have Brexit. We have, you know, what’s going on Australia and whatever, so that this is a trend and it’s global. So, I’m creating all that to explain what I see happening with banking as well. So, you have regulation and then you have difficulty and movement. So, in order when lockdowns happened, as lockdowns are happening, right, the probability or the likelihood of you being allowed in a jurisdiction increases, if you are a lawful permanent resident of that jurisdiction of your citizen.
So, my perspective is that you kind of divorce banking from residency. So, if it is that you have assessed, you know, you’re looking at flat fee or whatever you want to diversify yourself, or you see, Oh, you may be in a jurisdiction where banking is not as stable. So, when you look at a list of the, the strongest banks in the world, or strongest financial institution, you had a jurisdiction that none of your financial institutions locally on that list, and you don’t feel comfortable, you’re doing well. And you don’t feel comfortable putting all your eggs in that one basket, in that financial institution. So, you want to diversify a bit, you can do that if you become a resident, or if you have some sort of access to the jurisdiction in which you do want to bank.
So, if it is, you want to enjoy banking in Singapore, consider getting residency in Singapore. If you want to do it in Europe as well, European bank consider getting a European residence. And it’s not as hard as you think it is because there’s so many programs available right now that, that make that possible. So, I’m sorry for being a bit long-winded, but I do see them inextricably linked. Yes. You want to bank in a certain jurisdiction. Yes. You want to incorporate in a jurisdiction, look and see whether getting residents would make that process easier. And if so, considered the implications tax wise and otherwise, and, you know, plan that flag, bring that into your portfolio. So, it’s another, my point is it’s another asset class. You know, people talk about what I have a little bit of crypto, a little bit of precious metals. I have cash treasuries of whatever. What about your residence and citizenship? You know, where, where are you? So, I think it’s just part of that conversation. Sorry. Somebody has been writing questions in the chat, which is fine. If you don’t want to talk, you can just type in the chat box below. How does being a us citizen affect my tax burden if I move abroad and attain a second passport, I think, you know, I don’t know if you they’re here for the beginning of the conversation, it’s that momentum is already happening.
You know, people, you know, the conversation around colleagues that its real people leaving California, not just Elon Musk, but regular people, regular business owners, regular investors, who, I mean, for whatever reason, including the looming potential wealth tax have decided to tax us. So, Tennessee’s about our optional people leaving New York for Florida. So that’s really happening. So, you leave Texas, you leave, California. And you may save because the highest state tax module tax rate is what dating presents. You save 18%, one, three, but if you leave the US, you just physically leave the US, there’s a foreign earned income exclusion as a housing deduction.
So potentially the first 150 K of your earned income, like that is sheltered from a federal tax. So, you know, for some people that is a lot of money that can be used, that money that’s saved in tax can be used to invest. You can buy more crypto, you can buy more Tesla, you can invest in Singtel or, you know, or whatever, or else you, you have more investible assets. If you were to make those types of decisions. No, there are people who belong to countries or who are citizens of countries where that’s not allowed. I mean, another residence has no problem, but having a second passport is, so I guess you just need to be conscious of that.
For example, if you’re Singapore and or if you’re Indonesia and a few, most of the European of the Asian countries don’t really allow second passports, but definitely residencies. So, you just need to be sensitive to that. But obviously most of my clients, not obviously, but most of my clients are us exposed. And that is, that is definitely part of their strategy by leaving, by living outside of the US they save a lot in taxes, which it can reinvest otherwise. Yes, you would pay some follow up question from that. Would I still need to pay tax on your income? Yes. The United States is famously that one jurisdiction where you will be taxed on your worldwide income, regardless of where you reside.
So, in that way, the IRS sees no difference between Seattle and Singapore, but the tax code gives you tax breaks, US personnel outside of the US, that US persons inside the US can gets like the 9 11 foreign income exclusion that I mentioned now, not to ignore those with other passports that I mean, the US has been stymied with that reputation for worldwide tax, but other jurisdictions are catching up. So, for example, Canada, the CRA has the position that if you are traveling outside of Canada as a Canadian, that’s okay. But essentially, if you are not properly tax resident in another jurisdiction for back rules might apply and you would be deemed to still be resident in Canada, even though you haven’t been back in Canada for years, and you just moving around and investing and doing what I’m assuming the UK, and same with Australia, seven New Zealand, these fallback rules are becoming more and more aggressive, and some other European countries have taken a step further. So, for example, if you have Swedish or Spain or whatever, even though you’re outside and you’re a tax resident somewhere else for X number of years, it takes X number of years to, to stop being a tax resident without European country.
And then some other jurisdictions like Italy, it’s able to, you have an Italian passport you outside, even if you are a resident somewhere else, if you in a tax Haven. So, I have clients on under my Malaysia second home, they’re living in Malaysia. And obviously if you’re an MSH and you don’t have Malaysia source income, which they don’t, you know, investors, you have money from overseas. You’re not paying taxes on it. Italy will say, well, hold on you in a tax-free situation, you are deemed to still be tax resident in Italy, even though you haven’t been back for decades. So, the US may have started it as with many things in the tax space, but other countries are catching up.
So, it is something to be conscious of and speak with whoever advisor you use before you make that kind of step. Right? Okay. Sorry. Somebody just commented on parts of Africa. So, yet Africa, you know, historically people have been looking at parts of Southeast Asia for that lifestyle. So being in Bali famously being in whatever in Malaysia or Singapore, whatever, and sitting back, and because they can create a situation, especially in Singapore and Malaysia, where your tax on its territorial tax.
So, your investments outside of not subject to tax, so you can live well, but there are jurisdictions in Africa that would allow that. And I have clients that people that are actively I, and you can see it on YouTube. There are some popular YouTubers who are exploring Africa from an investment perspective, Rwanda, all the way up there in terms of the infrastructure and ease of doing business, non-corruption, clean, safe, but also Ghana, I’ve been to Mauritius myself, healthy, you know, offshore landscape for those one, invest into Africa where it’s just as a great jumping off point as is the Arab Emirates. So, Africa, I agree. Africa is definitely up and coming. Any other comments or questions?
GUEST:
Hey Derren, is buying a property in another country? Will that allow you to open up an account at financial institutions? Something as if you know, potentially getting residency is more difficult.
DERREN JOSEPH:
Well, yeah, I guess the, the varying degrees of difficulty, but every country on earth has an, has some, however, they phrase it, however they brand it some, some scheme or some program where you can hand over cash and you can get residency, at least every country, every country name the country. And I’ll tell you that it has one, of course, I’m excluding North Korea, Cuba, you know, that kind of stuff, Iraq, Iran, but basically, it’s, it’s normal. So, depending on the jurisdiction, part of the residency by investment may involve or citizenship by investment may involve buying property. So, for example, the five Caribbean islands that offers citizenship by investment, which will be Antigua, St. Kitts, Dominique and St. Vincent Grenada, I think a double count. So, they’re all, as far as I’m aware, they have a real estate portion to get that send ship. In terms of residency, you can get a residency by investing in real estate and in many European countries like Portugal, Greece, Cyprus, Eastern Europe in Montenegro and so on and so forth.
So, my point is that the investment in real estate can also come with fringe benefits such as legal residency. But having said that, if you’re not really interested is not part of your plan to get residency in a jurisdiction. You can just, depending on the laws, of course you can invest in real estate. And by having some connection to the jurisdiction, it makes it easier to have that conversation with the bank to open a bank account because they always ask, well, so why are you here? If you’re not citizen or resident, why do you want to open an account with a bank? And if it is that you have investment property and therefore you have local source income, then it just, it makes sense to, to have a bank account. So that it makes a conversation easier. Of course, some jurisdictions are easier than others because like in Southeast Asia, the only country that I’m aware of that allows you to buy landed property would be Malaysia and everywhere else, you just get air rights. You really can’t get into a landed property like you can in Malaysia, but it’s easier of course, in Latin America, maybe Africa, Europe, and so on and so forth.
GUEST:
Okay, thank you. Are there also breaks for if you want to start a small business somewhere? Is that another way of getting residency or no.
DERREN JOSEPH:
Absolutely. So that’s the basis for my residency in Singapore. So, I started a company and that company got me residents there. And, and you can use that same vehicle for, for many countries. I think everyone is open for business. And that, that is a common way aside from just investment or opening a company. So, if it is that you already are a business owner then incorporating in the jurisdiction in which you want to plant a flag is definitely a way in, I’m thinking most countries, including Europe would of course, the thresholds would be in terms of the amount of capital that you need to provide can be pretty high. Like, I think in Indonesia, you need to type like half a million dollars depending on what you want to do. So, the capital injection required in opening that business would vary, but most countries do allow residents residency for business owners and people starting businesses, especially if they’re going to bring jobs in definitely. Any other questions, comments?
GUEST:
I don’t have any, but this is absolutely great information. Thanks. Thanks Derek.
DERREN JOSEPH:
Yeah. And, I’m in the group, the WhatsApp group is quite diverse, but of course there are many people of color and many of us are either immigrants or the children of immigrants. So, I was born in London because my parents wanted a batch of life and they left Trinidad and they ended up, they thought the UK will give them that opportunity. And then later on, my dad moved to the US and that’s how the US opened up as an opportunity for our family as well. So, in a way, it’s in our DNA, the idea of moving from one jurisdiction to another to create and to preserve wealth, it’s not unfamiliar to us. So, in that sense, this is just a natural continuation of that journey. So yes, we have done okay. In the UK or France or Canada or the US but when you look at those above us, so like the first slide I have was Warren Buffett. You know, he just made that investment. When was it last year in two or three of the largest trading houses in Japan, one of the co-founders of Google? He got his Cypress citizenship two years ago. You know, you know, New Zealand, there were so many, there’ve been so many articles online with how New Zealand has been doing well, attracting tech entrepreneurs and billing is who want a second residence from other than Silicon Valley, other than California. So, they have a nice Ron Shaw set up in New Zealand. So, this is something that, in terms of your personal financial journey, it’s always been, the it’s always been the next step. It’s always been the next step. So, as we are at that stage where we are doing okay, you know, you know, six, seven figures, then it’s natural to start thinking in that way as well. How can I hedge against what’s happening? We know that history pizza itself, the government on hiding their process, then they need to plug their balance sheets. They need to deal with them deficits. They will raise taxes, president Biden. Hasn’t had had that the chancellor of the Exchequer in the UK hasn’t hit, you know, it’s not a secret it’s happening in the budget. These things are happening. This is real. So, you know, the, the tax code is, there’s a reason why Warren buffet has always, you know, has famously said that his marginal tax rate is lower than his secretaries. That’s because the tax code is deliberately written to favor investors over employees. And that’s not just a domestic tax code, but those are the international tax rules.
When you look, when you read a tax treaty, you actually sit and you read, and you go through the different paragraphs of a model strategy. It’s written to give more tax benefits to people earning investment income than to people earning earned income. So, the exchanging time for money to exchanging services for money, it’s just the way it is. It’s not a conspiracy theory. It is the way the rules. So, I think it’s really unfortunate. We were not to continue that natural step in our evolutionary process and not leverage the same tax rules that are written for everybody’s benefit. And you leave money on the table because that’s essentially what you’re doing. If it is that you are at a stage, because I know some people are still at a stage where they are dependent, their location bound. They must go to this office every day and so on and so forth. But if you are at a stage where you’re running your business, like my clients are all, you are a reliance on investments, then you are doing yourself and you’re doing your family a disservice. If you want not leveraging the rules to you and your family’s advantage. And that means legally considering other residencies and citizenships, and the easiest one would be where our parents came from at the very, for those who are immigrants, not just for those of the African diaspora, but you know, when I talk to my clients in the US and they want to leave the US so, oh your grandparents are from Italy or from Ireland. Where’s your Irish passport, your Italian passport. All those European countries do have those rules. You can, legally, once you can prove that one of your grandparents was Irish, British, Italian, French, whatever. You will get a passport to my Jewish clients. Why don’t you have an Israeli passport you’re legally entitled to one to, or base on the, the rules. Because as, I don’t know how much of history class he paid attention to around the time when Christopher Columbus got his first series air round from the King and queen of Spain to go on and on his startup venture to GD United States that coincided in 1490s with the ejection of Jews from Spain and Portugal.
So, I have clients right now who were able, based on certain rules and laws in Spain and Portugal to reclaim the Portuguese and their Spanish citizenship, because their ancestors were kicked out 500 years ago. And it’s all, it’s all legal. The, you know, everybody’s taking advantage of these and you’re leaving money on the table, if you are not, and you’re leaving yourself exposed, if you are not. So, any other questions or comments? Nope. Okay. That’s all right. So again, depending on the stage of your journey, you’re at, you may be in the wealth creation mode, but once you get to the stage where you’re sitting on a nest egg, and, you know, you have, you, you, you begin to think with a different perspective and you think about preserving your wealth and making sure that you are able to not let it be eroded by not obviously not inflation, but you know, political risk, taxes, foreign exchange on unexpected, foreign exchange movements or whatever. So, you want to diversify yourself. You want to diversify your lifestyle. And that would mean, especially right now, where it’s probable, that the lockdowns or the difficulties in movement will continue into the future, that you equip yourself with a portfolio of residences and passports. And that’s all, again, there’s a whole wealth of stuff online. So do check it out, YouTube, just a multitude of websites that will help you make whatever the choices are. But the obvious ones will be look within your family, where your parents, from where your grandparents from, and that’s where the journey begins. That’s where the journey begins. There are fantastic jurisdictions out there before we came on, live with, Keishi and I were talking about the United Arab Emirates. It’s one of the futurist sections in the world that right now is open to non-essential travel. So, you can come in without the hurdles that entering other jurisdictions now entail, and it is tax free. It’s tax free. So, income is tax-free capital gains is tax-free, there’s no inheritance tax, no gift taxes, 100% legit tax rate. So, you know, so most popularly of this seven Emirates would be Dubai, but if you’re not into that hustle and bustle that city life like Singapore, Dubai, there are other Emirates, Abu Dhabi, Fujimura, Sharjah, which offer that more laid back. You can go hiking, you know, just beach or whatever it is, you’re into it, more laid-back lifestyle. So, the Emirates or the up-and-coming jurisdictions, at least within my client portfolio, Barbados clients from South Africa, from the US from the UK heading to Barbados right now, they have a welcome visa, but not just by me and others. Barbados is really good marketing. So, but Dominika has something similar. I mean, this is residence, not citizenship. We spoke about citizenship. Bermuda has something as well. So basically, Barbados welcomes you. It’s called a welcome visa. You’re there for one year, and you’re there tax-free for one year as well. And you can run your business, work remotely, whatever the case may be. Other popular jurisdictions would be Portugal. They’re <inaudible> into Portugal, where you can go in and your investment income is subject to now, it’s not tax free because it’s Europe, right? So, Europe is pretty aggressive, but you have a modified and attractive tax regime and a non-habitual residence as you do in the UK. We can, where you can be resonant. And Dom Ireland has something as well. Spain has something as well in the Beckham law named after a soccer player, David Beckham. So, there are jurisdictions where you can enjoy that quality of life in a tax efficient tax efficient, relatively situation. And you can create site creating your portfolios as well. And now where healthcare is, of course, a concern you’re looking at jurisdictions that do have advanced infrastructure in that space as well, and at a cost-effective price.
So, yeah. Okay. Thank you very much. I appreciate the conversation again. I know for some of you, this is maybe still early, but take the seed, plant it and as things go well for you, now have an extra tool, a skill set or tools that you can draw upon to help you achieve whatever your personal goals may be. Have a good night, have a good morning, and I’ll see you back into WhatsApp group.
GUEST:
Thank you very much, Derren.
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[ HTJ Podcast ] Wealth Preservation, Newly Minted Millionaires, Flag Theory – 10TH April 2021
VOICE OVER:
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DERREN JOSEPH:
So, I guess, if I were to look at it, there’s a continuum between wealth creation and wealth preservation. And, you know, there are people who, wherever they are in their personal financial journey, they’re on the side of wealth creation and there those who are on this moving towards wealth preservation, you know, wherever you are in the continuum now within the last few months, I think I’ve spoken to more newly-minted millionaires than any other time in my professional history.
Thanks obviously to crypto, but also, you know, people have invested in other things, particularly technology-related businesses and have done particularly well. And it seems counterintuitive given what we’re going through right now with this pandemic, but there are people that have coming out on the right side. You know, I think it was last week. It felt almost like a joke. It’s like every single day I’m jumping on zoom with somebody who’s saying, you know what I’ve made, I’m sitting on one point, whatever 3, 5, 9, 18, $25 million of gains. And the one they’re talking to people to try to get off, to explore options, how am I going to deal with this?
You know, they’re walking away from fantastic jobs, high six figure jobs because this momentum is really working in their favor and they’re thinking, okay, how can I protect what I’ve earned? I mean, obviously take it off the table and, and diversify and whatever, but they’re looking at different options geographically in terms of jurisdictions. Now, I think there’s, there’s the obvious stuff. Kind of like, you know, there’s a lot of press coverage on Cal exit for example, people are leaving California to go to Texas or Tennessee or people leaving New York to go to Florida.
But outside of the US context, even within the US context and outside of US context, people are looking at different jurisdictions in more meaningful way than before. And I’ll perhaps explain later on. So let me share my screen. I just have a few slides that kind of capture some of the ideas that have been bouncing around in my head as I see things unfolding. All right. Yeah. So, you know, you have to quote the man, you kind of have this conversation without acknowledging, so right. To begin the conversation at diversification. But again, yes, we think about asset classes, but I want to promote the idea.
I want to suggest, I want to plant a seed in your mind, even though this doesn’t make sense today, the seed will be there. And at some point, in time, it may manifest in a more meaningful way for you. So, the idea is no single country’s perfect. And we know that a country might be good for banking or may be good for certain types of businesses, but tax wise, it may not be the most tax efficient in terms of the quality of life that you’re looking for for, you know, it may not be giving you what you’re looking for, but you know, so no one country’s perfect. So, the idea is to create a portfolio of residencies and citizenships that expose you to the, the qualities that you’re looking for.
So, this obviously is nothing new. There’s a guy when you explore, not the literature, but the debates or the discussion around this, invariably, you get hit with something called flag theory. And now I know that for those of you who are based in Singapore or Malaysia, and in certain European countries, there are businesses that have borrowed that name and incorporated using that brand name. But as far as the law or legend has it that the term was developed in, I think in 1930s and 1940s or whatever by this guy called Harry Schultz.
And he used it to describe he, he came up with three flags. So, the one on the left when you’re looking at it on your left. So, he started off discussing three flags. But to me it isn’t meant to be prescriptive. The principle is that you don’t have all your eggs in one basket that you pick jurisdictions that work in your favor, depending on what you’re trying to achieve. And you plant a flag in each of those. So, the most recent international incarnation of this has been what you see on the right where it has evolved from three to seven flags, but you know, it doesn’t have to be that.
So, but at the very least, when people are having this type of conversation, it will be, you know, wherever you’re born. So that’s your citizenship, but it may be where your resident, depending on again, this, I, you know, reminding you that this perhaps makes more sense for people who are on the wealth preservation side of their financial journey, as opposed to the wealth creation side. So, you, on the wealth preservation side, you may be able to run whatever business you have remotely, or you have investments in different jurisdictions. And that sends you want to be somewhere that offers residency taxation, residence-based taxation, were so like Singapore, Malaysia, Hong Kong, where you only tax the income arising from within those jurisdictions.
Then that is a sharp contrast to you, US, Canada, Australia, New Zealand, most of the EU where ordinarily there are exceptions, I knew, but ordinarily once you are a tax resident and the average OECD nation, or the average wealthy nation, you will be subject to tax on your worldwide income, but there are jurisdictions that allow you to legally avoid that. And if, if you pick really well, you can legally avoid capital gains tax as you can in Singapore and Hong Kong Malaysia, in terms of offshore company formation.
Again, this is a function of the nature of your business or whatever, but there’s some jurisdictions that make it quite easy and they give you attractive options in terms of company formation, in terms of banking, for those of you who have done business in different countries, you know, it’s not necessarily company formation, but banks can be a real headache and banking, especially if you are having to do business in jurisdictions with exchange, rate controls, such as Indonesia or in the Caribbean. I think I mentioned Barbados recently and so on and so forth. And of course, moving up to the seventh flag, I wouldn’t bother to go through each of them because they’re, self-explanatory, they’re digital assets.
And in terms of, for those who, especially into crypto, there are some jurisdictions that are more accommodating than others. I mean, you, you may think of, well, yeah, Singapore doesn’t have capital gains tax, but depending on how it is, you manage your crypto. And I have clients that yes, they buy and hold, but I have clients that are active traders and the what, what is perhaps not well understood is that the law, the rules, the tax rules are different. So, if it is that you are deemed to be by the tax authority to be a trader, rather than an investor, that’s a different conversation.
So, there’s no longer tax rate in Singapore or crypto Haven like Portugal, you know, a lot of people flock to Portugal would that promise, but yes, it’s crypto friendly, but if you’re a trader, you’re going to be taxed, it’s going to be subject to Portugal, corporate tax. Like most of Europe, corporate tax is not very low. So, moving on black Swan events for those, I mean, it’s hard to imagine, but within the not so distant past the marginal tax rate in the United States was pretty high. It went up to 94%, you know, 75% was the average for quite a considerable period of time. Going great depression, going into the war period and so on. And of course, well, you know, the, the idea of gold confiscation that is I’m sure everyone is familiar with that because as people flight move to safety, move to the safety of crypto and precious metal levels, one of the sales pitches that you would hear commonly used as the reality that it is plausible for the government to pass it and rules to make ownership or control of certain types, certain asset classes difficult, if not illegal.
And I think within the chat group, there was some recent discussion over what’s going on in India, for example, crypto and other jurisdictions as well. And including China and as, as jurisdictions for whatever geopolitical or economic reasons they either are law crypto, or they would prefer that their citizens or their residents use their own crypto as in crypto that has been issued and authorized by the, by the, by their central banks. And yeah, you know, the, the pandemic, how many people were really caught out. I remember when it first had, it was hundreds of thousands of people were locked out of Australia when Australia closed the borders. Or for me personally, I was on a three-day trip to Indonesia for business, and then suddenly Singapore closed. And I could not get back in now that again, that has implications to access to wealth. Fortunately, Singapore understands that it’s a wealth Haven. So even in the midst of the lockdown, those engage in financial services with deemed an essential service. So, you know, those who work in the, the big gold falls under shiny and the wealth management businesses and whatever they will allow to continue, which is a good thing. But every jurisdiction was as followed thinking and progressive as Singapore.
So, some people were caught out, so I’ll stop there because basically I think we, we get the idea again, for those who may be at the stage in their personal financial journey with this still on wealth acquisition or the growing their wealth, perhaps not quite yet, but still the seed has been planted, put it in the back of your mind and pick it up and run with it later on. Would it perhaps make sense, but for those who are at the stage where, you know what I’m sitting on a decent nest egg, and I want to try and figure out, okay, how can I manage this?
How can I present? How can I defend this in a way that works for me and the way that works for my family? And I cannot think I’m sure you guys would agree with me. It’s hard to think of any country right now that is not looking at increasing taxes as a way to plug the hole created by the recent economic and health challenges. That that’s is very real. And for those in the U S of course, certain States are looking at a wealth tax as is the UK. I think the UK is looking at a one-off well tax and, you know, things like that. You know, if it is you’re on a salary, that’s one thing.
But if you’ve retired, you’ve invested well, and you’re sitting on a nest egg, the idea of your wealth being double taxed, or perhaps like in the case of those countries that do have a wealth tax going like Spain, it’s your wealth is being continuously rooted by not just inflation, but by a wealth tax every year. And once upon a time that was farfetched. But now not so much because governments are really desperate, the holes in their balance sheets that need to be plugged. So that’s where we are. Any thoughts? Any questions?
GUEST:
Hey, Darren. I guess the biggest questions always relates to taxes, I guess, specifically, in regards to where you have your assets, where your, where your domicile and potentially what are the tax implications for having a wealth distributed in, in many different countries. So, you know, I’ll let you comment on this, but I suspect it’s based on where you’re deemed, where your tax residency is defined as to how you would then have to declare potential gains realized unrealized in the various jurisdictions. If you, if you could comment a little bit more.
DERREN JOSEPH:
Yeah. So, it is a real Pandora’s box and that different countries, different jurisdictions look at things differently. So, for example, if you are deemed to be domiciled and domiciled, again is a concept that’s not normally defined by any tax code, but it’s more or less better understood using case law. So, we’ve relied on the courts to help us understand what domiciled means, but just keeping it very top line and very, very simple. It it’s more like a concept around intense. So where, where, where is it? Do you have your closer connections? Where’s your center of life? Where, where do you intend to retire and pass away after even though you, you’re working as an X-Box, you’re traveling all over the world, but where is, where is it you truly considered to be your home? Where’s your heart? You know, again, it, it is, it seems to be quite abstract with that. That’s essentially what it is. And depending on the jurisdiction that you’re exposed to, for example, the us, or you came, you have for the, I mean, to put it crudely, you have debt taxes, you have, you have inheritance taxes, you have a state taxes to consider, and that has implications as you try to accumulate wealth, because for many of us who have families, this is about the kids. This is about creating a springboard for the next generation. And even if you’re not thinking that far ahead in, in the case of the US just as an example, or even again in the UK, because I guess being a former British colony, the laws are not too dissimilar. Even by giving a gift, it could be, it could have tax implications. So, and depending on how you hold, whatever your investments may be, you may be taxing unrealized gains, depending on which jurisdictions you may or may not be intentionally unintentionally connected with.
So, I guess stepping back from the minutia of domiciles and the various taxes that may apply, I think more so than before, we have an opportunity in that, you know, these tools where the preserve of let’s say the 1% or the elite, they always had the ability to pick the jurisdictions, work in their interest. And that’s just the way it’s always been. No, because of the various residency programs and citizenship by investment programs.
Now it’s open up to people of less say more modest means, you know, from high six to seven and eight figures, they, you know, anyone can basically assuming that you are at the stage where you’re not really required to be in a specific location for your job. You can create a situation where you declare residents or even declared domiciles in a jurisdiction that, that works for you. And again, one size doesn’t fit all. It really depends on you. So, what I would suggest anybody do is think about, well, what are your objectives, personal and business wise, what it is you’re really trying to achieve. And, and again, I know this is for those who are at the stage where, okay, I, I’m a newly minted Melania. I am sitting on 10, 20, $30 million of investible assets. And yeah. Okay. So, I like where I am. I want to keep hold of it. And then you risk. Then you do some sort of risk assessment. Okay. Given my presence situation, I I’m a Canadian citizen and I’m sitting in Toronto. What are the implications of that? From a tax perspective? Obviously, Canada is one of those jurisdictions. That’ll tax your new worldwide income taxes are pretty high.
Am I comfortable with that is maybe I am, maybe that’s okay? Or maybe I’m not. Maybe I want to explore my options. And if it is that you, you see that, okay. I want to explore options that allow me to more tax efficiently, invest in a certain asset class or to more easily pass wealth on to my children or whatever the case may be. Then you have a gap that you need to be filled, and you can sit with whomever. You can Google to be fair. Everything is freely available online. Nothing is a secret anymore. And you can identify jurisdictions that you are interested in, that you wouldn’t mind spending time in. You wouldn’t mind setting up, shop in and see whether they, they work in your favor and they give you what you intend to achieve. So, what, what people do with me is that they would have been doing that day. They’re sitting on a certain number of a certain quantum of assets, and they’re no longer tied to a job. You know, I’m seeing people right now walking out of some really well-paid jobs by choice, because they are doing so well with their investments. So that’s, so they have achieved the freedom that they want. They have looked around the world, they spend time looking at YouTube videos or whatever, and they’ve narrowed it down to some jurisdictions that they enjoy, spending time in. So that’s for them personally. So now they’ll come to someone like me or whoever and ask the question, well, okay, this is my situation. This is who I am, how, and these are my objectives. I want to continue growing these different asset classes as they are right now. And I want to enjoy sunshine. Oh, I will. I enjoy skiing, winter sports, whatever the case may be. And these are, I’ve been traveling a bit, and these are the, or I’ve been looking at YouTube videos, and these are the jurisdictions that interests me now, given my interests and given my objectives, you know, what are your thoughts? Would they help me? Am I heading in the right direction? So, that’s it essentially. And then take action.
GUEST:
Okay. I know one of the challenges about opening up a financial account in, in any global jurisdiction is I think it’s somewhat defined by your residency at the time. You know, it’s, it, it’s very difficult for someone to come into Singapore and just naturally open up a bank account, you know, their specific requirements. And I’m pretty sure that’s applicable to different countries around the world. What is some of the options that are available to make it easier for number one, to open up at minimum, a bank account, potentially, a brokerage account, a trading account, even though you’re not considered a residence, a permanent residence in that jurisdiction.
DERREN JOSEPH:
That’s a good question. So, because as everyone is aware, you know, for the past decade or two, I think most people have lost track of the number of scandals, you know, the Panama papers and the paradise papers and the whatever. So, banks have been drawn in sometimes unfairly, to be honest with you and being accused of money laundering and facilitating tax evasion and stuff like that. So, the bands on the back foot and they’ve been thrown in the deep end, in terms of regulation was jurisdictions themselves have been more heavily regulating banks. And then on top of that, you have on the OACD level, at least at the international level, you have agreements like factor the financial contracts compliance act, or the automatic exchange of implementation, or the common reporting standard.
And so, what all these do is conspire to just give banks a hard time so it’s not. So, you know, everybody has problems and it’s not personal. It’s just the environment in which we now function. What do you do? And that’s where having the portfolio comes in. So yes, landing in Singapore and asking to open a bank account, and the bank will be raising an eyebrow. Like why, why Singapore? I mean, they do it. I mean, don’t get me wrong. They take, but the minimum balance is going to be on the higher side. And the onboarding process is going to be more rigorous as opposed to someone who’s a legal resident of Singapore or the UK or whatever the case may be.
And that’s where having the portfolio comes in. So, because you don’t expect, then those of us who believe that the cycle of lockdown and reopening, it’s not going to stop anytime soon, if you look at, and let’s say again, I want to put this in a slightly historical perspective. So, I have a client who is Italian American, and, you know, he’s big into his family tree and his family history and stuff like that. So, him and his family, they traced back to that first relative that arrive at Ellis Island and to New York and the new U S so back in those days. So, this is the late 18 hundred. You just basically rock up to Belize Island. You don’t even need an identity document. You identify yourself and you get some sort of basic medical test sentence, welcome to the United States. And you’re in now fast forward a couple of decades. It was, well, we need to see some sort of identity document something I’d advise yourself. And then fast forward a few decades, you have the concept of a passport to facilitate in stash will travel. That was relatively new. And then fast forward a little bit, then you have visas. So, my point is that barriers to international travel have been getting increasingly difficult. Now we are at a stage where if you look at it right now globally, the whole visa system has been thrown out the window.
You know, people who thought they had a powerful passport and that it allowed them to enter X number of countries, visa free. That’s all gone. You know, some people have been joking that a us passport or a British passport is on par with certain African possible. In that you cannot really go to that many places because of the, the whole lockdown. Now jurisdictions are reopening, like to some extent, Singapore is reopened, but then not opening to the, the level of permission needed to enter and you know, the prequalification or whatever. So basically, non-essential travel like essential travel. It’s unlikely that’s going to return anytime soon. And for those who believe that economic nationalism is growing, you know, we have to try to, we have President Trump, we have Brexit. We have, you know, what’s going on Australia and whatever, so that this is a trend and it’s global. So, I’m creating all that to explain what I see happening with banking as well. So, you have regulation and then you have difficulty and movement. So, in order when lockdowns happened, as lockdowns are happening, right, the probability or the likelihood of you being allowed in a jurisdiction increases, if you are a lawful permanent resident of that jurisdiction of your citizen.
So, my perspective is that you kind of divorce banking from residency. So, if it is that you have assessed, you know, you’re looking at flat fee or whatever you want to diversify yourself, or you see, Oh, you may be in a jurisdiction where banking is not as stable. So, when you look at a list of the, the strongest banks in the world, or strongest financial institution, you had a jurisdiction that none of your financial institutions locally on that list, and you don’t feel comfortable, you’re doing well. And you don’t feel comfortable putting all your eggs in that one basket, in that financial institution. So, you want to diversify a bit, you can do that if you become a resident, or if you have some sort of access to the jurisdiction in which you do want to bank.
So, if it is, you want to enjoy banking in Singapore, consider getting residency in Singapore. If you want to do it in Europe as well, European bank consider getting a European residence. And it’s not as hard as you think it is because there’s so many programs available right now that, that make that possible. So, I’m sorry for being a bit long-winded, but I do see them inextricably linked. Yes. You want to bank in a certain jurisdiction. Yes. You want to incorporate in a jurisdiction, look and see whether getting residents would make that process easier. And if so, considered the implications tax wise and otherwise, and, you know, plan that flag, bring that into your portfolio. So, it’s another, my point is it’s another asset class. You know, people talk about what I have a little bit of crypto, a little bit of precious metals. I have cash treasuries of whatever. What about your residence and citizenship? You know, where, where are you? So, I think it’s just part of that conversation. Sorry. Somebody has been writing questions in the chat, which is fine. If you don’t want to talk, you can just type in the chat box below. How does being a us citizen affect my tax burden if I move abroad and attain a second passport, I think, you know, I don’t know if you they’re here for the beginning of the conversation, it’s that momentum is already happening.
You know, people, you know, the conversation around colleagues that its real people leaving California, not just Elon Musk, but regular people, regular business owners, regular investors, who, I mean, for whatever reason, including the looming potential wealth tax have decided to tax us. So, Tennessee’s about our optional people leaving New York for Florida. So that’s really happening. So, you leave Texas, you leave, California. And you may save because the highest state tax module tax rate is what dating presents. You save 18%, one, three, but if you leave the US, you just physically leave the US, there’s a foreign earned income exclusion as a housing deduction.
So potentially the first 150 K of your earned income, like that is sheltered from a federal tax. So, you know, for some people that is a lot of money that can be used, that money that’s saved in tax can be used to invest. You can buy more crypto, you can buy more Tesla, you can invest in Singtel or, you know, or whatever, or else you, you have more investible assets. If you were to make those types of decisions. No, there are people who belong to countries or who are citizens of countries where that’s not allowed. I mean, another residence has no problem, but having a second passport is, so I guess you just need to be conscious of that.
For example, if you’re Singapore and or if you’re Indonesia and a few, most of the European of the Asian countries don’t really allow second passports, but definitely residencies. So, you just need to be sensitive to that. But obviously most of my clients, not obviously, but most of my clients are us exposed. And that is, that is definitely part of their strategy by leaving, by living outside of the US they save a lot in taxes, which it can reinvest otherwise. Yes, you would pay some follow up question from that. Would I still need to pay tax on your income? Yes. The United States is famously that one jurisdiction where you will be taxed on your worldwide income, regardless of where you reside.
So, in that way, the IRS sees no difference between Seattle and Singapore, but the tax code gives you tax breaks, US personnel outside of the US, that US persons inside the US can gets like the 9 11 foreign income exclusion that I mentioned now, not to ignore those with other passports that I mean, the US has been stymied with that reputation for worldwide tax, but other jurisdictions are catching up. So, for example, Canada, the CRA has the position that if you are traveling outside of Canada as a Canadian, that’s okay. But essentially, if you are not properly tax resident in another jurisdiction for back rules might apply and you would be deemed to still be resident in Canada, even though you haven’t been back in Canada for years, and you just moving around and investing and doing what I’m assuming the UK, and same with Australia, seven New Zealand, these fallback rules are becoming more and more aggressive, and some other European countries have taken a step further. So, for example, if you have Swedish or Spain or whatever, even though you’re outside and you’re a tax resident somewhere else for X number of years, it takes X number of years to, to stop being a tax resident without European country.
And then some other jurisdictions like Italy, it’s able to, you have an Italian passport you outside, even if you are a resident somewhere else, if you in a tax Haven. So, I have clients on under my Malaysia second home, they’re living in Malaysia. And obviously if you’re an MSH and you don’t have Malaysia source income, which they don’t, you know, investors, you have money from overseas. You’re not paying taxes on it. Italy will say, well, hold on you in a tax-free situation, you are deemed to still be tax resident in Italy, even though you haven’t been back for decades. So, the US may have started it as with many things in the tax space, but other countries are catching up.
So, it is something to be conscious of and speak with whoever advisor you use before you make that kind of step. Right? Okay. Sorry. Somebody just commented on parts of Africa. So, yet Africa, you know, historically people have been looking at parts of Southeast Asia for that lifestyle. So being in Bali famously being in whatever in Malaysia or Singapore, whatever, and sitting back, and because they can create a situation, especially in Singapore and Malaysia, where your tax on its territorial tax.
So, your investments outside of not subject to tax, so you can live well, but there are jurisdictions in Africa that would allow that. And I have clients that people that are actively I, and you can see it on YouTube. There are some popular YouTubers who are exploring Africa from an investment perspective, Rwanda, all the way up there in terms of the infrastructure and ease of doing business, non-corruption, clean, safe, but also Ghana, I’ve been to Mauritius myself, healthy, you know, offshore landscape for those one, invest into Africa where it’s just as a great jumping off point as is the Arab Emirates. So, Africa, I agree. Africa is definitely up and coming. Any other comments or questions?
GUEST:
Hey Derren, is buying a property in another country? Will that allow you to open up an account at financial institutions? Something as if you know, potentially getting residency is more difficult.
DERREN JOSEPH:
Well, yeah, I guess the, the varying degrees of difficulty, but every country on earth has an, has some, however, they phrase it, however they brand it some, some scheme or some program where you can hand over cash and you can get residency, at least every country, every country name the country. And I’ll tell you that it has one, of course, I’m excluding North Korea, Cuba, you know, that kind of stuff, Iraq, Iran, but basically, it’s, it’s normal. So, depending on the jurisdiction, part of the residency by investment may involve or citizenship by investment may involve buying property. So, for example, the five Caribbean islands that offers citizenship by investment, which will be Antigua, St. Kitts, Dominique and St. Vincent Grenada, I think a double count. So, they’re all, as far as I’m aware, they have a real estate portion to get that send ship. In terms of residency, you can get a residency by investing in real estate and in many European countries like Portugal, Greece, Cyprus, Eastern Europe in Montenegro and so on and so forth.
So, my point is that the investment in real estate can also come with fringe benefits such as legal residency. But having said that, if you’re not really interested is not part of your plan to get residency in a jurisdiction. You can just, depending on the laws, of course you can invest in real estate. And by having some connection to the jurisdiction, it makes it easier to have that conversation with the bank to open a bank account because they always ask, well, so why are you here? If you’re not citizen or resident, why do you want to open an account with a bank? And if it is that you have investment property and therefore you have local source income, then it just, it makes sense to, to have a bank account. So that it makes a conversation easier. Of course, some jurisdictions are easier than others because like in Southeast Asia, the only country that I’m aware of that allows you to buy landed property would be Malaysia and everywhere else, you just get air rights. You really can’t get into a landed property like you can in Malaysia, but it’s easier of course, in Latin America, maybe Africa, Europe, and so on and so forth.
GUEST:
Okay, thank you. Are there also breaks for if you want to start a small business somewhere? Is that another way of getting residency or no.
DERREN JOSEPH:
Absolutely. So that’s the basis for my residency in Singapore. So, I started a company and that company got me residents there. And, and you can use that same vehicle for, for many countries. I think everyone is open for business. And that, that is a common way aside from just investment or opening a company. So, if it is that you already are a business owner then incorporating in the jurisdiction in which you want to plant a flag is definitely a way in, I’m thinking most countries, including Europe would of course, the thresholds would be in terms of the amount of capital that you need to provide can be pretty high. Like, I think in Indonesia, you need to type like half a million dollars depending on what you want to do. So, the capital injection required in opening that business would vary, but most countries do allow residents residency for business owners and people starting businesses, especially if they’re going to bring jobs in definitely. Any other questions, comments?
GUEST:
I don’t have any, but this is absolutely great information. Thanks. Thanks Derek.
DERREN JOSEPH:
Yeah. And, I’m in the group, the WhatsApp group is quite diverse, but of course there are many people of color and many of us are either immigrants or the children of immigrants. So, I was born in London because my parents wanted a batch of life and they left Trinidad and they ended up, they thought the UK will give them that opportunity. And then later on, my dad moved to the US and that’s how the US opened up as an opportunity for our family as well. So, in a way, it’s in our DNA, the idea of moving from one jurisdiction to another to create and to preserve wealth, it’s not unfamiliar to us. So, in that sense, this is just a natural continuation of that journey. So yes, we have done okay. In the UK or France or Canada or the US but when you look at those above us, so like the first slide I have was Warren Buffett. You know, he just made that investment. When was it last year in two or three of the largest trading houses in Japan, one of the co-founders of Google? He got his Cypress citizenship two years ago. You know, you know, New Zealand, there were so many, there’ve been so many articles online with how New Zealand has been doing well, attracting tech entrepreneurs and billing is who want a second residence from other than Silicon Valley, other than California. So, they have a nice Ron Shaw set up in New Zealand. So, this is something that, in terms of your personal financial journey, it’s always been, the it’s always been the next step. It’s always been the next step. So, as we are at that stage where we are doing okay, you know, you know, six, seven figures, then it’s natural to start thinking in that way as well. How can I hedge against what’s happening? We know that history pizza itself, the government on hiding their process, then they need to plug their balance sheets. They need to deal with them deficits. They will raise taxes, president Biden. Hasn’t had had that the chancellor of the Exchequer in the UK hasn’t hit, you know, it’s not a secret it’s happening in the budget. These things are happening. This is real. So, you know, the, the tax code is, there’s a reason why Warren buffet has always, you know, has famously said that his marginal tax rate is lower than his secretaries. That’s because the tax code is deliberately written to favor investors over employees. And that’s not just a domestic tax code, but those are the international tax rules.
When you look, when you read a tax treaty, you actually sit and you read, and you go through the different paragraphs of a model strategy. It’s written to give more tax benefits to people earning investment income than to people earning earned income. So, the exchanging time for money to exchanging services for money, it’s just the way it is. It’s not a conspiracy theory. It is the way the rules. So, I think it’s really unfortunate. We were not to continue that natural step in our evolutionary process and not leverage the same tax rules that are written for everybody’s benefit. And you leave money on the table because that’s essentially what you’re doing. If it is that you are at a stage, because I know some people are still at a stage where they are dependent, their location bound. They must go to this office every day and so on and so forth. But if you are at a stage where you’re running your business, like my clients are all, you are a reliance on investments, then you are doing yourself and you’re doing your family a disservice. If you want not leveraging the rules to you and your family’s advantage. And that means legally considering other residencies and citizenships, and the easiest one would be where our parents came from at the very, for those who are immigrants, not just for those of the African diaspora, but you know, when I talk to my clients in the US and they want to leave the US so, oh your grandparents are from Italy or from Ireland. Where’s your Irish passport, your Italian passport. All those European countries do have those rules. You can, legally, once you can prove that one of your grandparents was Irish, British, Italian, French, whatever. You will get a passport to my Jewish clients. Why don’t you have an Israeli passport you’re legally entitled to one to, or base on the, the rules. Because as, I don’t know how much of history class he paid attention to around the time when Christopher Columbus got his first series air round from the King and queen of Spain to go on and on his startup venture to GD United States that coincided in 1490s with the ejection of Jews from Spain and Portugal.
So, I have clients right now who were able, based on certain rules and laws in Spain and Portugal to reclaim the Portuguese and their Spanish citizenship, because their ancestors were kicked out 500 years ago. And it’s all, it’s all legal. The, you know, everybody’s taking advantage of these and you’re leaving money on the table, if you are not, and you’re leaving yourself exposed, if you are not. So, any other questions or comments? Nope. Okay. That’s all right. So again, depending on the stage of your journey, you’re at, you may be in the wealth creation mode, but once you get to the stage where you’re sitting on a nest egg, and, you know, you have, you, you, you begin to think with a different perspective and you think about preserving your wealth and making sure that you are able to not let it be eroded by not obviously not inflation, but you know, political risk, taxes, foreign exchange on unexpected, foreign exchange movements or whatever. So, you want to diversify yourself. You want to diversify your lifestyle. And that would mean, especially right now, where it’s probable, that the lockdowns or the difficulties in movement will continue into the future, that you equip yourself with a portfolio of residences and passports. And that’s all, again, there’s a whole wealth of stuff online. So do check it out, YouTube, just a multitude of websites that will help you make whatever the choices are. But the obvious ones will be look within your family, where your parents, from where your grandparents from, and that’s where the journey begins. That’s where the journey begins. There are fantastic jurisdictions out there before we came on, live with, Keishi and I were talking about the United Arab Emirates. It’s one of the futurist sections in the world that right now is open to non-essential travel. So, you can come in without the hurdles that entering other jurisdictions now entail, and it is tax free. It’s tax free. So, income is tax-free capital gains is tax-free, there’s no inheritance tax, no gift taxes, 100% legit tax rate. So, you know, so most popularly of this seven Emirates would be Dubai, but if you’re not into that hustle and bustle that city life like Singapore, Dubai, there are other Emirates, Abu Dhabi, Fujimura, Sharjah, which offer that more laid back. You can go hiking, you know, just beach or whatever it is, you’re into it, more laid-back lifestyle. So, the Emirates or the up-and-coming jurisdictions, at least within my client portfolio, Barbados clients from South Africa, from the US from the UK heading to Barbados right now, they have a welcome visa, but not just by me and others. Barbados is really good marketing. So, but Dominika has something similar. I mean, this is residence, not citizenship. We spoke about citizenship. Bermuda has something as well. So basically, Barbados welcomes you. It’s called a welcome visa. You’re there for one year, and you’re there tax-free for one year as well. And you can run your business, work remotely, whatever the case may be. Other popular jurisdictions would be Portugal. They’re <inaudible> into Portugal, where you can go in and your investment income is subject to now, it’s not tax free because it’s Europe, right? So, Europe is pretty aggressive, but you have a modified and attractive tax regime and a non-habitual residence as you do in the UK. We can, where you can be resonant. And Dom Ireland has something as well. Spain has something as well in the Beckham law named after a soccer player, David Beckham. So, there are jurisdictions where you can enjoy that quality of life in a tax efficient tax efficient, relatively situation. And you can create site creating your portfolios as well. And now where healthcare is, of course, a concern you’re looking at jurisdictions that do have advanced infrastructure in that space as well, and at a cost-effective price.
So, yeah. Okay. Thank you very much. I appreciate the conversation again. I know for some of you, this is maybe still early, but take the seed, plant it and as things go well for you, now have an extra tool, a skill set or tools that you can draw upon to help you achieve whatever your personal goals may be. Have a good night, have a good morning, and I’ll see you back into WhatsApp group.
GUEST:
Thank you very much, Derren.
VOICE OVER:
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Table of Contents: [ HTJ Podcast ] Wealth Preservation, Newly Minted Millionaires, Flag Theory – 10TH April 2021
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