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The term perpetual traveller (also PT, permanent tourist or prior taxpayer) refers to both a lifestyle and a philosophy.
In practical terms, perpetual travellers (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, social security contributions, jury duty and military service.
For example, while PTs 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.
Some PTs 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 becoming a legal tax resident and therefore eliminating 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. Canada considers anyone spending 183 days or more per year to be resident for tax purposes.
Similarly, it is possible to 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 applicable only for non-US citizens who are not permanent residents and earn no income in the United States.
In general PTs can, by moving between countries on a regular basis, be able to legally reduce or eliminate their tax burden. Other PTs may adopt this lifestyle for self-ownership reasons, seeking to be free from government authority.
Besides the aforementioned economic reasons, some people become PTs from philosophical or existential reasons, feeling unable and/or unwilling to commit to residency.
Five Flag Theory
Perpetual travellers 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 W.G. Hill's own "2 flag" extension of investment advisor Harry Schultz'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:
- Passport and citizenship - in a country that does not tax money earned outside the country or control actions.
- Legal residence - in a tax haven.
- Business base - where you earn your money, ideally somewhere with low corporate tax rates.
- Asset haven - where you keep your money, ideally somewhere with low taxation of savings interest and capital gains.
- Playgrounds - where you spend your money, ideally somewhere with low consumption tax and VAT.
Six Flag Theory
- Same flags as in Five Flag Theory : Citizenship, residence havens (domiciles), playgrounds, business bases, and asset havens.
- Electronic haven in cyberspace - where your servers and websites are located, ideally somewhere with low regulation.
In recent times, PTs are revising the Flag Theory and looking beyond planting just a few flags.
A case exemplifying the application of the Flag Theory is the renunciation of US citizenship by Facebook co-founder Eduardo Saverin in favour of his Singapore residency which is considered to be tax-friendly.
- Three Flag Theory for Expats "Some PTs add even more flags to create a five flag theory..."
- Amazon Book Description "To succeed as a PT you will compartmentalize your life under these FIVE FLAGS..."
- Hill, Dr. W. G. (1996). PT 2 The Practice: Freedom and Privacy Tactics. Scope International Limited. ISBN 0-906619-58-0.
- "The Foundation". FlagTheory.com. May 12, 2012. Retrieved May 13, 2012.
- Quentin Hardy (May 11, 2012). "A Facebook Founder Renounces His U.S. Citizenship". The New York Times. Retrieved May 12, 2012.
- Edmund (May 12, 2012). "Facebook Co-Founder "De-Friends" America". FlagTheory.com. Retrieved May 12, 2012.