Perpetual Traveler Investments

[Whizneo]

I am a Canadian. Canada doesn't tax its citizen who don't live in Canada. You also can't have any personal ties to the country. But basically, I meet the requirement. I don't have to file taxes in Canada.

Now, I want to live a perpetual traveler (previous tax payer) life style.

I have enough to live on the interest or returns from the investments I make from here on. 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 pretty much lived the PT lifestyle for the past 5 years, although it was not something that I really planned in advance, I just enjoyed it. I don't have the same tax and residency issues that you do because I am an American citizen, and my tax liabilities to Uncle Sam are based on my citizenship. We don't have the same option as Canadians (or almost all other countries) of changing our tax residence without renouncing citizenship (something I have never remotely considered).

In terms of asset allocation, I don't see that it is that different for a PT than most other early retirees. I invest almost exactly like I would invest as if I were a renter living in the USA. What I do differently because I am a PT:

* My investments are less tied to the US dollar than they otherwise would be because my spending is mostly in foreign currencies. For a Canadian, being diversified from your currency is more important than it is to an American (don't get hooked in by recency bias). Also, your future pension may be in Canadian dollars. The way I achieve this is investments in index funds of foreign stocks, a commodity futures fund, and, to a lesser extent, inflation protected dollar investments (I-bonds, TIPs).

* I maintain a USA mailing address operated by a mail forwarding company. I get an email for every piece of snail mail, can get it scanned, forwarded, etc. This is essential for your financial accounts (unfortunately) -- you need some kind of permanent address that is accessible independent of your location. The cost for this is very low.

* For many countries, in order to declare yourself a non-resident for taxpaying purposes, you need to declare yourself a taxpayer and resident in a different country. This is no simple matter for a PT, so you should look into the details. Also, as a non-resident, make sure that you can maintain your investments in Canada or if not you will need to establish a new nexus elsewhere (and if the investments remain in Canada, will there be source withholding on interest? There is for non-citizen Americans in your situation.). These are important details. The people on this Canada-centric financial forum can help you:

Financial Webring Forum • About Us

From your post, I think you might need to take some study to study about investing. For that, I can recommend this forum (see the getting started links, etc):

Bogleheads Investing Advice and Info

Finally, I would like to add that I never really got to know that many Canadians until I started traveling. Now, I have learned all about Canada in a way I didn't know it before and made many new friends and even visited friends there that I made during my PT existence. Best wishes to you.

 

[MichaelB]

Hi Kramer. Good of you to stop by. Where are you and what have you been up to?

 

[NYEXPAT]

I would be curious to know how you could become a "non resident" under Canadian law, without establishing "tax residency" someplace else?

To achieve "non-resident" status it is my belief that you must sell all assets/close financial accounts and pay the departure tax on all your capital gains?

If you pursue this you will lose access to your health care, so you should look for a good international health care policy. I know many expats that use Loyd's of London and swear by it. Be advised that in many countries you will have to pay cash for any health services/operations etc. and then be reimbursed for the cost.

I would carry several "open loop" debit cards denominated in Dollars ($10,000.00) each to avoid any "currency controls" at borders and still have an adequate emergency fund in your pocket.

 

[NYEXPAT]

I would be curious to know how you could become a "non resident" under Canadian law, without establishing "tax residency" someplace else?

Never mind, I figured it out!

 

[kramer]

Hi Kramer. Good of you to stop by. Where are you and what have you been up to?

Michael, hello to you and thanks I am currently enjoying life here in the Philippines, I arrived almost 2 months ago. I lived in Mexico for 3 months this Fall, mostly Mazatlan. In between Mexico and the Philippines, I spent Christmas with my extended family in the USA, 3 weeks there in total.

I also stopped by Chapala, Mexico with a friend and Billy and Akaisha were incredibly kind hosts for us for our 3 days there.

By December, the average temperature range in Mazatlan was high of 74/23 and low of 47/8 and it was windy most days. While the Canadian expats were wearing shorts and reveling in how "warm" it was, I was freezing and made an escape plan

Well, I don't want to take this thread off-topic so I will just leave it at that for now

 

[Gone4Good]

I'd second everything Kramer said.

Normal investing rules apply.

Your two biggest challenges arise from "asset/liability currency matching" and navigating the specific legalities of your home country (which even for a U.S. citizen who spends most of his time within the U.S. can be complicated.)

Finding appropriate investments with cash flows denominated in the same currencies as your expected expenses can be problematic - and the risk, return characteristics will be far different from what is assumed in any retirement calculator.

Personally, I manage that risk by making sure I can still afford to return permanently to my home country if needs be. I keep my spending, regardless of currency, limited to my U.S. dollar denominated withdrawal budget. I invest in my home-country currency, taking advantage of the deep financial markets and ample legal protections. I can also rely on the accumulated wisdom of generations of retirement research without worrying about it's applicability to the specifics of foreign capital markets and inflation patterns.

The downside to this approach is that it may not permanently fund a life in destinations whose currency relentless appreciates against the dollar. But I'm starting with a sizeable cushion considering that my initial budget is large enough to comfortably live in the U.S. I worry about the folks who retire to somewhere like Thailand on a meager dollar (pound, euro) denominated pension.

My preference is always to have a plan B. And returning permanently to the U.S. if I have to is a pretty acceptable one to me.

 

[Whizneo]

Specific issues with PT

Hello All, and thank you for your replies. I had kept my first post short because I wasn't sure of the interest in the PT topic on this forum. Here are some more details of what my questions are about:

Being a perpetual traveler for me is both about 1) Traveling, which I enjoy and 2) Not having to pay taxes anywhere.

So, I am trying to identify the countries for my "five flags", you can read more about it here: PT - The Theory. For my purpose, I only need about 3 flags, here is how:

Flag 1, Citizenship:
Canada will be my country for passport. I plan on leaving Canada for good. I do not want any ties pointing back to Canada, which can get me in some soup down the road. Canada doesn't require a citizen to file taxes if they don't live in Canada AND if they don't have any ties to Canada.


Flag 2/3, Domicile/Playgrounds:
I plan on living in US for 4 months, Panama for 5 months, and 3 months a year in other places (Bahamas, Bermuda, Aruba or a mix of a bunch of different countries).

I would avoid substantial presence on any of these countries by doing that. I have done my math on this (if anyone is interested, I will post specific information on substantial presence test for US/Panama and other countries). But basically, I will live in such a way that I will not be considered a resident for tax purposes in any country.


Flag 4, Business Base:
Since most of my business has to do with Online marketing and the Internet, I can form a company in a tax haven.

Caymand Islands has no No corporate income tax, personal income tax, employee taxes etc. So this is where I would incorporate a company.
Cayman Islands Tax Rates


Flag 5, Asset Repository:
This is the one I am confused about. Where do I keep my money, and in what. There are tax implications on this, even if I am a non-resident for tax purposes. For example, if I own real estate in the US, and if I earn income through rental properties, I have to pay 30% taxes on that. I think the same applies to stocks I own on any major index, there is a withholding and taxes have to be paid later.

Since I am trying to make it so that I don't even have to file taxes anywhere, my specific question is about investments which will be inherently tax free. For example, are there any tax havens where real estate has no capital gains tax and no income tax has to be paid on rental income?

Sorry about the long post. I wanted to share my thoughts so far, and please, feel free to poke holes in this. I would rather learn now than later when I have gone too far!

Andrew

 

[Whizneo]

Never mind, I figured it out!

Please shed some light on this NYEXPAT. Even though I have thought about how I would move between 3 different countries, I have not really thought about the specifics of being considered a "resident" in another country. What exactly did you figure out?

 

[NYEXPAT]

Please shed some light on this NYEXPAT. Even though I have thought about how I would move between 3 different countries, I have not really thought about the specifics of being considered a "resident" in another country. What exactly did you figure out?

I assumed your (after taxed ) assets would be held in an offshore entity (in a tax free country). You will be living in 3 other countries, never spending more than a few months in any one too avoid "tax residency".

 

[Whizneo]

You are right. I plan on spending 4 months in US, 5 months in Panama, and 3 months in Bermuda/Bahamas/Cayman or a combination of those places.

I will not meet the US substantial presence test. Panama doesn't consider you a resident for taxes if you spend less than 6 months there. The rest don't have any personal taxes.

However, I have read online at a couple of places that before Canada would "let me out" as a resident for tax purpose, they would want to know where I am moving and where will I be a resident for tax purpose. I am not sure on this yet. I will update this thread if I found more information.

I have also submitted a detail reply to my original post, but it still hasn't been approved by the moderator.

I assumed your (after taxed ) assets would be held in an offshore entity (in a tax free country). You will be living in 3 other countries, never spending more than a few months in any one too avoid "tax residency".

 

[Gone4Good]

Flag 1, Citizenship:
Canada will be my country for passport. I plan on leaving Canada for good. I do not want any ties pointing back to Canada, which can get me in some soup down the road. Canada doesn't require a citizen to file taxes if they don't live in Canada AND if they don't have any ties to Canada.

What happens when your passport expires?

What will you do for health insurance? Is it still covered by Canada or are you going al fresco?

 

[Whizneo]

Canada has consulates in many countries (including US and Panama). When my passport expires, I just renew my passport at one of these consulates.

Here is a list:
Directory of Canadian Government Offices Abroad

I can not rely on Canada for Health Insurance, because that is one way Canada would consider me still having "ties" with the country. Canada is pretty strict about the "ties", for example, if I have a an ongoing club or gym membership, Canada says that it shows my "intent to return" to Canada, and I still have ties with the country.

Health insurance is not a huge concern for me. I plan on paying for it myself.



http://www.voyage.gc.ca/contact/offices-list_liste-bureaux-eng.asp

What happens when your passport expires?

What will you do for health insurance? Is it still covered by Canada or are you going al fresco?

 

[Gone4Good]

Flag 5, Asset Repository:
This is the one I am confused about. Where do I keep my money, and in what. There are tax implications on this, even if I am a non-resident for tax purposes. For example, if I own real estate in the US, and if I earn income through rental properties, I have to pay 30% taxes on that. I think the same applies to stocks I own on any major index, there is a withholding and taxes have to be paid later.

I'm pretty certain that owning U.S. rental property would also require you to file for and pay state income taxes.

All of this sounds like a tremendous amount of trouble to avoid paying taxes. Is the avoided tax bite really enough to offest all the added complexity, risk, travel restrictions, health care bills, and inability to invest in an otherwise optimal mix of assets?

 

[Whizneo]

I'm pretty certain that owning U.S. rental property would also require you to file for and pay state income taxes.

All of this sounds like a tremendous amount of trouble to avoid paying taxes. Is the avoided tax bite more than offest by all the added complexity, risk, travel restrictions, and inability to invest in an otherwise optimal mix of assets?

You are right. US rental property doesn't meet this requirement. So far, I have found that Cayman Islands is a good option for me to own rental properties. They don't have any capital gains tax, and no tax on rental properties. More here: Tax Free Property Investments | Cayman Islands Real Estate. But I also want to see if there are ways for tax free investing in equity, and any other types of more conventional, cash flow based options.

And yes, I have been fortunate to cash out on a business I started in my 20s. So the tax savings are substantial enough for me to go the extra mile. I am also in my early thirties, so I have a long way to live off of the nest egg.

 

[Gone4Good]

And yes, I have been fortunate to cash out on a business I started in my 20s. So the tax savings are substantial enough for me to go the extra mile. I am also in my early thirties, so I have a long way to live off of the nest egg.

Congratulations.

In that case, you may find the advice of a professional banker versed in the complexities of international tax law and investment options to be a worthwhile investment. As much as we're all about DIY investing here, what you're trying to do, I suspect, is a bit above most of our pay grades.

 

[NYEXPAT]

And yes, I have been fortunate to cash out on a business I started in my 20s. So the tax savings are substantial enough for me to go the extra mile. I am also in my early thirties, so I have a long way to live off of the nest egg.

Including the first 20-30% "tax hit" of all your assets before you even leave Canada?

I do not want to "piss on your parade" and it is possible, as I am sure many of us have accomplished what you are trying to achieve. Each of our "home countries" have complex laws that require professional opinions to guide your way.

To complicate matters more, in any country that I am aware of it is not LEGAL (though many do) to carry on a business over the internet while on a tourist visa.

Although my background/career was on Wall Street, I can not make traditional investments in the USA without triggering tax consequences. I know of Non-Americans that have traded US stocks through certain European banks without paying taxes but that is unavailable to me.

The advantage you have is that you can turn that residency (in Canada) back on and after several years, I believe you can spend up to 6 months in Canada without triggering a taxable event.

That being said "Not having to pay/owe taxes", (although we do pay them on booze/cigarettes/VAT) is a liberating event!

 

[MichaelB]

That being said "Not having to pay/owe taxes", (although we do pay them on booze/cigarettes/VAT) is a liberating event!

As a US citizen abroad you still owe taxes, even if the income is unearned local interest.

 

[burkey]

Sorry to ask such a dumb question, but what does FIRE stand for?

 

[Whizneo]

Including the first 20-30% "tax hit" of all your assets before you even leave Canada?

When I sold my business, I took that tax hit already. So the money is mine, in my personal name, and have already paid taxes on it. The question now is, when this money gets invested and starts earning new money (through rental properties, equities or whatever), how do I make that income tax free. I do not want to do anything illegal for sure..but my research so far shows that this is feasible, and legal.

I appreciate your inputs guys! I understand I will need to hire a lawyer/CPA to get the pieces together, but I am just doing my initial research.

On a related note, here is a great comparison of income tax on rental properties.

Global rental income tax comparison

Looks like there are a few countries in the US/Caribbean with no income tax from rental properties. I know Cayman has no Capital gains taxes either.

 

[MichaelB]

Sorry to ask such a dumb question, but what does FIRE stand for?

Hi burkey, welcome to the forum. Not a dumb question at all, and it may be what brought you to our community. FIRE is an acronym for Financial Independent Retire Early

 

[Sarah in SC]

Sorry to ask such a dumb question, but what does FIRE stand for?

I see Michael answered your question, but in case you have others:
http://www.early-retirement.org/for...slang-frequently-used-on-the-forum-34884.html

 

[NYEXPAT]

A US citizen abroad would still owe taxes, even if the income is unearned local interest.

Corrected it for ya!

 

[NYEXPAT]

When I sold my business, I took that tax hit already. So the money is mine, in my personal name, and have already paid taxes on it.

Congratulations! Many years ago with the help of Divorce law and Tax law, I was able to liquidate Cap gains tax free all my holdings. My Ex-wife got 50% of it (but she earned every penny)!

 

[MichaelB]

When I saw the part about "we" I assumed you were referring to your own experience. Sorry - no offense meant.

That being said "Not having to pay/owe taxes", (although we do pay them on booze/cigarettes/VAT) is a liberating event!