Perpetual Traveler Investments

[nun]

Tax Free living is possible if you aren't a US citizen. The OP will remain domiciled in Canada, but may well be able to avoid Canadian tax by becoming non-resident in Canada and moving assets to a tax haven like Cayman or Isle of Man. You have to be careful not to meet any of the residency requirements in the places you stay though as one day too many and you will be in trouble.

 

[obgyn65]

Like you I have enough to live on, I am a US / EU citizen and I plan to travel a lot more (Europe and Central America) when I FIRE. Taxes are one issue but so is healthcare insurance (have you heard about International Medical Group ?). Also, one another concern to me is how to move funds from one country to another (and minimize exchange rates impact).

Are there any PTs on this forum? Any investment ideas which work well for PTs? I will be spending about 4 months a year in 3 different countries every year, so will be a non resident for tax purpose. Let me know!

 

[kramer]

I have always felt like Americans living abroad have a small advantage because they have access to the lowest cost financial markets and there is an advantage in having a lot of your wealth by default in the world's main reserve currency -- its value tends to be anti-correlated with stock prices (IOW, my dollar is worth more abroad when world markets are down as that tends to help the dollar, dollar worth less when markets are up and there is lots of confidence but then I am rich anyway, this reduces the tails of the distribution).

My weighted expense ratio for my investments is about 0.2%. And because I invest in the USA markets, I can invest in worldwide assets with an amazing amount of diversification at such low cost.

Now, let's say that your move increases the costs of your investments (pre-tax) from 0.2% to 0.7%. Let's also say that you are doing a 3.0% SWR and that 5% of your expenses are due to having to live an itinerant lifestyle to maintain tax-free status (temporary housing, extra plane flights, admin costs, this doesn't even include the hassle factor).

In the case I have outlined, the pre-tax cost of paying 0.5% extra annual investment expenses plus 5% of your 3.0% SWR is .65% per year of your net worth. That is a 21.67% "tax" even though you are not paying any income or capital gains taxes to a government. Even if you are paying a 30% marginal rate, your total tax may not amount to 21.67%.

Also, if you are going to invest in real estate in a tax haven as your primary investment, your investments are not diversified. And the pre-tax return on capital will not be as high in a place like that simply because tax costs are lower (only the post-tax return on capital should be higher -- the rest of the benefit goes to increasing standard of living of people living there, not to capital).

I would do this sort of analysis in your case.

Also, it really is not safe to live in the USA without some sort of health insurance. With lots of cash (as you will have), you could probably do it relatively safely in any other country of the world, though. But you will get burned in the USA.

 

[nun]

I have always felt like Americans living abroad have a small advantage because they have access to the lowest cost financial markets and there is an advantage in having a lot of your wealth by default in the world's main reserve currency -

This is true. Low cost investing is a big US advantage. However, if you are not a constant traveller and reside in a foreign country for tax purposes there may well be local restrictions on the US investments you can make and you must make sure there is a good tax treaty in place to deal with pensions etc. You wouldn't want to have a US tax free ROTH that is taxable where you live.

 

[Gone4Good]

In the case I have outlined, the pre-tax cost of paying 0.5% extra annual investment expenses plus 5% of your 3.0% SWR is .65% per year of your net worth. That is a 21.67% "tax" even though you are not paying any income or capital gains taxes to a government. Even if you are paying a 30% marginal rate, your total tax may not amount to 21.67%.

I would do this sort of analysis in your case.

This puts some good numbers around my intuition.

I imagine that only in rare cases, where extraordinary wealth is involved, does it make sense to go through the effort and expense of trying to tap dance around the world's tax laws. As a U.S. tax payer, my access to tax advantaged dividend income and tax free muni interest income means that I'd need a portfolio well into 8 figure before any of this would make financial sense. (A quick calc over at Dinkytown says that $250K of income generated from a $10MM portfolio of equities and muni bonds would result in a Federal tax bill of only $1,800)

I'm reminded of people I know who buy tax free muni bonds even though they can get better after tax yields in fully taxable investments. I guess they get some kind of psychic benefit from avoiding the tax man even if they're financially worse off as a result.

 

[traineeinvestor]

Even though a PT may not be subject to income tax, many countries will collect non-resident withholding taxes on income earned by non-residents. As an example, if I had shares in a US company, I would have 30% NRWT deducted from all payments. NRWT rates vary from country to country and also depend on the place of residence of the investor, whether any double tax treaties apply and the type of income - the NRWT for my investments outside Hong Kong ranges from zero to 30%.

There is also the question of estate duty - some countries will levy estate duty on the value of a deceased's assets held in their jurisdiction even if the individual concerned was not tax resident at the time of death.

 

[nun]

Even though a PT may not be subject to income tax, many countries will collect non-resident withholding taxes on income earned by non-residents. As an example, if I had shares in a US company, I would have 30% NRWT deducted from all payments. NRWT rates vary from country to country and also depend on the place of residence of the investor, whether any double tax treaties apply and the type of income - the NRWT for my investments outside Hong Kong ranges from zero to 30%.

There is also the question of estate duty - some countries will levy estate duty on the value of a deceased's assets held in their jurisdiction even if the individual concerned was not tax resident at the time of death.

True enough. But there are countries that don't impose tax on money coming from abroad. Thailand is one where you can get a retirement visa, live there full time and not pay tax on any money you bring into the country. So is you aren't a US citizen and have investements in a tax haven like Cayman Islands you can live tax free. Of course I wonder how much you pay in fees for these type of accounts

 

[Whizneo]

Guys, you all make good points.

Few clarifications I wanted to make:

The requirement of having to live in 3 different countries, 4 months every year, is self imposed, and not required for a tax free lifestyle. I would travel because I want to, not cause I have to.

For example, if I bought a house in Cayman Islands, I will be given a "permanent residency" there. And I could be living there for 12 months a year, without any taxes (personal/corporate/capital gains etc). So practically, the cost of living would be the same as if I was living in Florida for example. More here: Cayman Islands Immigration and Entry Requirements. See under Residency for Persons of Independent Means.

Specifically, To become resident in Little Cayman or Cayman Brac, proof of an annual income of CI$75,000 without the need to be employed in the Cayman Islands and an investment of CI$250,000 locally, of which at least CI$125,000 must be in developed residential real estate. There is a one-time fee payable on grant of CI$20,000.

The question I have is, can my cayman island corporation invest in US stocks, Canadian stocks, or other investment vehicles, without having to mess with those countries' tax laws? Does anyone have experience investing through an offshore corporation, tax free? Again, I do understand that a lawyer would have more answers, but I just want to do some homework!

Now, let's say that your move increases the costs of your investments (pre-tax) from 0.2% to 0.7%. Let's also say that you are doing a 3.0% SWR and that 5% of your expenses are due to having to live an itinerant lifestyle to maintain tax-free status (temporary housing, extra plane flights, admin costs, this doesn't even include the hassle factor).

 

[NYEXPAT]

Bain Capital comes to mind for some reason!

Yes, but you need to find a brokerage account with somebody who deals in all these markets. I won't do the the research, but look for a European Bank/Brokerage with offices in the Cayman islands. Alternatively you could set up an account online with one of the European brokerages, they will give you a secure RFID so you can trade from anywhere in the world. I know many guys who live in Peru but trade through Luxembourg that way.

 

[burkey]

FIRE

Thanks Michael B. Love this site. I am soon to be 57, planning to retire in 2014, but since reading the many blogs, considering earlier retirement. Good news is I love a lot of what I do, have a great management group in our company, and a boss who leaves me alone. Just getting a little tired of some of the process, politics, etc., which never bothered me much in the past.

Appreciate your many posts.