We received a large number of thank you messages from excited readers who have deregistered their resident status. They’re no longer resident in their country of origin and, since the majority of them don’t have a new place of residence, they are now without a fixed residence. Their lives as perpetual travellers is about to begin.

They have prepared: they deregistered their residence last year and they will be able to live tax-free for the next year. But be careful! In some countries, you become tax resident have to pay taxes for the whole year, even if you have only been there for a short time.

This means that you have to pay tax this year if you earn over the minimum income amount or you are not a resident in another country with a double taxation agreement.

The process of liberating yourself from the State takes time, but there is more than enough time for you to prepare and deregister by the end of this year. It is important, therefore, that you understand and correctly apply the Flag Theory.

People sometimes talk about the disadvantages of being a perpetual traveller, based on certain myths and a misconception of what a perpetual traveller really is.

Some criticise the lack of a permanent residence and its disadvantages, but they just don’t understand that permanent residence is a fundamental part of the Flag Theory, so it is important in the life of a perpetual traveller.

Perpetual travelling is not a fixed state; it is a process. As you discover more and more places while travelling the world, you put up more and more flags in different countries… How, where and if you actually manage to put them up is a personal choice.

You don’t need a permanent residence, but it is highly recommended. We’ll explain why in this article.

Why do you need a permanent residence?

It’s understandable why many associate being a perpetual traveller with not having a permanent residence. After all, a traveller is someone without a home, isn’t it?

It’s true that a lack of residence is the starting point, but it’s not the ultimate goal. At the end of the day, everyone starts from nothing.

Nobody starts off running an offshore business, with bank accounts in safe tax havens and several passports to hand, nor does the perpetual traveller have a fixed residence; in fact, they still don’t know where they want to live.

The perpetual traveller will have to overcome immigration restrictions, something that entails a large economic and bureaucratic effort, and effort which when we start, we generally prefer to invest in a business we can live off. The majority of truly interesting countries require big investments or at least some considerable profits as a minimum that most people starting out don’t have.

However, before you think about not living anywhere for the long term, you will have to decide on a country and area that you really like. The young and free perpetual travellers (which I would say I am) prefer to explore the word before deciding on the ideal place or places to settle down in.

The tax and legal benefits don’t really matter if you hate where you live. After all, you need to stay in your place of residence for at least half of the year (183 days).

This is the main problem facing those who want to have a permanent residence abroad: to gain resident status in most countries you need to be there for at least 183 days a year (some countries have specific rules, like having to be there for a minimum of 120 days over three years, for example, or renting out a property throughout the year). If you don’t comply with this, you sometimes lose your residence permit.

It is therefore unsurprising that most young people prefer not to have a permanent residence.

However, after travelling around for a while, even the most avid traveller starts to miss having a home somewhere in the world. For this reason, many people try to create a base for themselves in a country.

Luckily for you, there are some countries that don’t take this 183-day requirement very seriously (we’ll talk about a few examples, like Cyprus, in future articles). This means that you don’t have to stay there for half the year to obtain and keep your residence permit.

While in the stricter countries you will probably have to apply for a new permit every now and again, which often involves quite a lot of red tape and problems, most developing countries make it much easier for you. They might not even have the means to check how much time you’ve spent in that country.

It’s harder to get away with breaking the 183-day rule on islands (because it’s easy to check flights) but most continental countries don’t cause many problems.

Paraguay, Nicaragua, Belize or the Philippines are known for being quite relaxed when it comes to the 183-day rule.

There are also countries that deliberately try to attract wealthy people by offering them a residence permit that doesn’t require a minimum stay in the country. Sometimes they only have to pay a flat tax to enjoy the rights that come with having a permanent residence.

Malta, a country that makes it relatively easy for EU-citizens to obtain a permanent residence permit by being there for at least 183 days a year, also offers a programme that doesn’t place restrictions on the duration of the stay, but in this case you sometimes have to pay a flat tax of 15,000 euros a year and buy or rent a property on the island.

Permanent residence and tax obligations

But why would I want a permanent residence? Wouldn’t this mean I’d have to pay tax?

You are right if you think that you are subject to the tax laws of the country you live in. But being subject to the tax laws of a country doesn’t mean that you actually have to pay tax.

There are many countries where residents (especially foreigners) are exempt from paying income tax. Moreover, unlike what happens when you don’t have a residence, you can save lots of money with capital gains tax and indirect taxes (VAT).

There are 65 countries in the world where, if you do it correctly, you can live tax-free. There are another 15 countries where income tax is minimal and, since they don’t tax income made abroad, you can maintain an offshore business (in a tax haven) without any problems.

So, you can choose from a total of 80 countries which one you want to have as your residence without paying almost any tax. Some of them make it easier for you, others harder, and some make it virtually impossible to obtain a residence permit.

These 80 States, places where you can live however you want without tax restrictions being a problem, make up two fifths of the world.

You might be interested in learning more about these 80 countries in our e-book, The Emigrant’s Encyclopedia.

However, these countries that are completely free of income tax are problematic: they are not very attractive in terms of quality of life or they have eligibility criteria for immigration that very few people can meet.

But there are other countries that are attractive where I, personally, would be willing to live at some point, countries where you can get a permanent residence fairly easily.

Now, let’s start with the advantages of having a residence. On the one hand, it protects you from the risks that come with travelling without a residence and, on the other hand, it offers you many opportunities.

It protects you from certain problems:  

  • It helps you if you ever return to your country of origin.
  • It protects you against possible law changes or crises.
  • It saves you from problems linked to not having a postal address.

It offers you certain advantages:

  • It helps you avoid capital gains tax in your country of origin.
  • The refund of indirect taxes (like VAT) in certain circumstances.
  • It offers you better options for investment and easier access to real estate.
  • Other privileges.

I would like to talk about these aspects in detail below. Remember that this information applies principally to European citizens, but may also be valid for other nationalities.

6      advantages of having a permanent residence

1. It helps you if you ever return to your country of origin

Despite what you may have heard, although you are not domiciled anywhere, you don’t lose certain rights (and obligations). You don’t exist outside the law: nobody can kill you, rob you or enslave you without being punished.

You abandon your “rights” in terms of state support, but, in return, you are liberated from many other duties. Furthermore, you may still be able to vote in your country of origin, although it might be a bit complicated and not even interest you anymore.

However, travelling around the world without a fixed residence (or tax obligations) for a few years and then returning to your country of origin without having registered in another country during that time could cause another problem.

What is the problem? Well, the authorities in your country, at least the financial authorities, will ask where you’ve been over the past few years. You could have deregistered but actually continued living in your country in secret. Alternatively, you could have actually been abroad but cannot prove for how long.

If you don’t cover your back, it’s likely that this will pose a big problem for you. Having to pay the overdue taxes is the minimum that you can expect.

Moreover, even if you can prove that you were away, you will never know how the authorities will evaluate your case. You will definitely have to keep your passport, with all of the entry and exit stamps, as well as the receipts for the flights and hotels. As far as I know, at least in Germany, there aren’t any cases where a perpetual traveller who hasn’t had a fixed residence has had problems on their return (beyond those mentioned), but that doesn’t mean that it will always be like this.

Of course, you have to take your earnings and net assets into account. If you don’t have much money, the financial authorities might let it slide. However, if you’ve earned lots of money abroad, especially if you have been away for a long time, it’s important that you protect yourself somehow. The residence permit of another country is the best way to do it.

If you are an EU citizen, however, you shouldn’t have many problems. You can just live in another European country for a year and pay the possible taxes for that year. After that, you should be able to return to your home country without any problems.

But I still wonder: “Why did you want to live in your country of origin again? Do you really want to go from paying 0% of your profits to giving away 80% (in taxes, compulsory insurance…)”.

2. It protects you against possible changes in legislation or crises

In general, people who don’t have a permanent residence don’t have to pay tax, although this can vary from one country to another. Residents in Spain, for example, still have to pay tax for four years when they move to a tax haven. Similarly, the residents of many Commonwealth countries have to prove that they have a residence in another country to be able to be tax-free.

A permanent residence isn’t just a good idea in case there are changes to the law. You may want to live in a safe place, which won’t be affected by the crises that’ll happen over the coming years. The economic crises are far from over, regional conflicts and wars are inevitable, and there is always the chance that a world war breaks out. A factor to take into account when choosing a country may be that it’s neutral and largely self-sufficient, where you could survive any big crisis.

Considering this factor might seem silly to some. But they may not  find it so funny when they are actually prevented from entering other countries, an entirely plausible situation when humanitarian, political or economic crises occur. Anyone who doesn’t have a plan B will struggle.

The battlegrounds are and will be in Eurasia, especially in the Middle East and North Africa. If this factor worries you, I would recommend that you settle on a residence in peripheral areas.

Important factors to take into account are that the economy is somewhat autonomous, neutral and in a geographically strategic position.

With these factors in mind, you may find countries in South America and South Africa to be interesting prospects. The islands are not advisable because they’re not big enough.

However, you must decide for yourself if these factors are important for you.

3. It saves you from problems linked to not having a physical address

The lack of a permanent home limits your ability to communicate. After all, you don’t have an address for sending and receiving mail. Even though now it is possible to do almost everything online, there are still some cases where you need an address.

But there are various ways to solve this problem. You can have a temporary address near to your actual location, your parents, family or friends’ address, or simply have a virtual office that sends you your mail when you want it. The possibilities are varied.

Although this usually suffices for most daily tasks, it is sometimes not enough for something that is quite important to every permanent traveller: offshore bank accounts, the fourth point of Flag Theory.

Due to laws and agreements like the Common Reporting Standard for preventing tax evasion, laws against money laundering or the “Know Your Customer” policy to fight against terrorism, it’s getting more and more difficult to open a bank account in another country.

The days when you could go into a Swiss bank with a case full of money are over. Practically anywhere, you will need some form of evidence to prove your address, in the form of a bill sent to your address.

You will need a proof of address, like an electricity/water or telephone/Internet bill from the last three months, which verifies your place of residence,at least if you want to open a bank account remotely, by doing it via email and not in person. If you go in person to a bank and try to open a bank account, you may be lucky and only have to show your passport. However, this varies a lot from one country to another and even from one bank to another.

Of course you don’t need a permanent residence to obtain such a domestic utility bill. It’s easy to rent a room for a month, and you need a place to sleep anyway. After getting the bill, there shouldn’t be any problems when opening a bank account (by the way, this is the best strategy against exchange of information).

But you might actually want to be in a place for a longer period of time. When your income is above a certain amount , I assure you that it is very good idea to have a residence abroad that you return to at least regularly, regardless of whether you rent it or not. In any case, you will need a permanent residence permit before being able to buy properties in most countries.

With a property abroad, you have complete control over your mail, your friends can enjoy cheap holidays, you might make money from renting it out and you will also benefit from having a fixed residence that you can return to if you want or have to do so.

Be aware that having something of a base in another country doesn’t necessarily mean that you need to have a residence permit there. You can, to put it one way, be a person without a fixed address who has an address. This was my experience in Malta.

Most of this time you cannot buy a property without a residence permit, but it is possible for you to rent without a problem. If you spend four months a year with a tourist visa in your rented “holiday flat”, the address problem will probably be solved. However, you would lose the other advantages that I’m going to tell you about.

4. It will help you to avoid capital gains tax in your home country

If you deregister from the taxpayer registry in your home country, keeping your accounts and broker there isn’t a problem, you don’t automatically become a taxpayer (although they may impose a withholding tax). Once again, the laws can vary depending on the country.

However, income made through capital investment may force you to pay tax as a non-resident. This means that your income from interests and dividends will automatically be subject to a withholding tax.

Banks and brokers automatically withhold taxes to be paid, which will save you from having to do your tax return because, in general, corresponding financial entities will do it for you.

However, this means that, depending on the country where you have your accounts, they can end up with a large chunk of your revenue.

Of course, you don’t need to keep using accounts and brokers in your home country because there are plenty of other alternatives. But many people like to keep what they’ve already had for a long time, especially if you have a good relationship with the banking entity or if you appreciate the good service of your previous broker.

After all, it’s more and more difficult to open a good bank account abroad.

If you don’t have a residence, you will be able to avoid capital gains tax, but if you have a residence in another country and you can try it out, you can request to be exempt from tax on your interest incomes in a quite few countries.

5. Refund of indirect taxes (VAT)

In many countries (Mexico, Spain, Argentina…) VAT is added to all prices. However, this tax is only for those that use the product where they buy it.

If you reside outside of the country, in principle you have the option to claim back VAT (as we described in an article on the blog).

Therefore, if you buy in the European Union, but live outside it, you have, at least in theory, the possibility of getting a VAT refund. You may have noticed that there is a counter for this in big airports.

The truth is that, for some reason, this way of getting VAT back is rarely used. I spend a lot of time in airports and I’ve rarely ever seen people using the counters for these refunds.

Yes, it’s true that it takes some effort to compile all your invoices and file some documents, but I don’t think it’s that big a deal.

At the end of the day, you’re getting 21% back in Argentina and Spain and 16% back in Mexico. It’s well worth the effort when you’ve bought expensive items like PCs and mobiles.

6. Better options for investment and easier access to real estate

I’ve already mentioned that, in most countries, a residence permit is needed to buy immovable property. The same happens with a better access to certain investments.

Recently, a client told me about the possibility of ensuring interest rates of between 10%-15% in Paraguay. However, you need to have a permanent residence there to be able to benefit from it. Luckily, Paraguay is one of the easiest countries to obtain a residence permit in.

It doesn’t matter if it’s for properties or investments, with a residence permit in the right country you will have multiple options.

When should you start to look for a residence?

I hope I’ve clarified for you what a permanent traveller is and the advantages of having a residence. At first, the permanent traveller won’t usually have a fixed residence; given the advantages of having a residence, I don’t think that this is something to stick with forever.

Never having a residence is not the most desirable thing for a permanent traveller.

We find ourselves confronted again with paradox of being stateless. Are you stateless if you have a permanent residence in another country? Yes, you are. The same thing happens with your nationality. You’re not at the disposal of one country if you belong to two. You can minimalise the risk of an abrupt end to your permanent travels if you have a fixed residence, not to mention the many other advantages that this brings. After all, you can always give up your residence permit by abandoning the country, or even getting several (if the countries are relaxed about this).

This brings us to the question of how much time you should be without a permanent residence (since it’s a bad idea to never have one). It’s a complicated question and it depends entirely on your specific case.

Normally, you should start thinking about it after around 2-3 years of living as a permanent traveller. But, if you are already earning, you should think about getting a residence somewhere even before deregistering from your home country’s register.

It really depends on your personal needs. Some prefer to have a place where they can be permanently for half of the year. However, if you are a total nomad, you can put this off for a while or you can choose a country to be your permanent residence and not stay there for long periods.

Not having a permanent residence is a good opportunity for young people wanting to start a new business without restrictions or taxes. At the same time, they can use their freedom to discover many places around the world where they can imagine themselves living further down the line.

However, for the long-term, it’s a good idea to have a permanent residence; not only to protect yourself from certain risks, but also to benefit from the additional advantages that it brings.

If you want to apply for a residence to avoid the problems we have discussed in this article, you can take a look at the most interesting residence options and contact us.

You can also have a look at our encyclopaedia for the migrant, in which we explain everything you need to know to choose which country to emigrate to.

Because it’s your life!