Electronic Money Institutions and PayPal in Serbia
Electronic Money Institutions and PayPal: Legal Framework and Business Implications
The Evolution of Money and Digital Transactions
Traditional money served its purpose well when trade was local and transactions were simple. However, with the rise of the Internet and global commerce, new challenges emerged, particularly in the secure transfer of funds. Digital payment solutions like PayPal have revolutionized financial transactions by offering a safer and more convenient way to pay online without exposing sensitive credit card information.
Why Use PayPal for Online Transactions?
With the growth of online transactions, credit card fraud and data breaches have become major concerns. PayPal addresses these issues by allowing users to convert funds from their bank accounts into electronic money, which can then be used for purchases. This method minimizes the risk of financial data theft, making transactions safer and more convenient for businesses and individuals.
How to Connect to PayPal in Serbia
Serbian companies can use PayPal Business Accounts by following these steps:
- Obtain a Visa Business card from a local bank.
- Register a Business Account on PayPal and enter company details.
- Link the PayPal account to the Visa Business card.
- Pay a €1.5 verification fee, which is refunded upon successful verification.
This setup enables businesses to accept online payments securely and efficiently.
Legal Framework for PayPal in Serbia
According to the Payment Services Act of Serbia, PayPal is classified as a foreign issuer of electronic money. This classification affects how businesses can legally conduct transactions using the platform.
Regulations on Foreign Exchange Transactions
The Law on Foreign Exchange Management permits Serbian residents (both individuals and businesses) to make payments abroad using foreign electronic money issuers like PayPal. However:
- Funds stored with foreign electronic money institutions are not considered deposits under Serbian law.
- Transactions between two Serbian residents via PayPal are prohibited under the Foreign Exchange Law.
- Businesses must ensure compliance with tax regulations when using PayPal for international transactions.
A statement from the Ministry of Finance (Opinion No. 011-00-00598/2015-16, dated 13.1.2016.) confirms that electronic money transactions must occur exclusively with non-residents.
Penalties for Violations
Businesses or individuals violating foreign exchange laws by using PayPal for domestic transactions may face fines:
- Legal entities: RSD 100,000 to RSD 2,000,000
- Responsible individuals: RSD 5,000 to RSD 150,000
- Entrepreneurs: RSD 10,000 to RSD 500,000
Tax and Administrative Obligations
Although using PayPal for business transactions is legal, Serbian businesses must still meet tax and reporting requirements:
- Every transaction must be documented with an invoice.
- Withdrawals from PayPal accounts appear in the company’s foreign currency account within 5-7 days.
- Businesses must coordinate with accountants to ensure compliance.
Additionally, individuals offering freelance services to foreign companies must properly report their income and pay taxes. The Tax Administration of Serbia has mechanisms to track inflows and impose penalties for non-compliance.
The Future of Electronic Money in Serbia
While electronic money services have become more accessible, Serbia still lacks widespread local alternatives. Currently, only one Serbian company, iPay See d.o.o. Belgrade, is registered as an electronic money institution. Until international platforms like PayPal register locally, their use for domestic transactions will remain restricted.
Conclusion
PayPal and similar services provide secure and efficient payment solutions for international transactions. However, businesses in Serbia must comply with legal and tax regulations to avoid penalties. The development of domestic electronic money institutions could pave the way for wider adoption and more flexibility in the future.
For legal assistance or more information on electronic money regulations, contact us at [email protected] or call +381113281914 (Monday–Friday, 08:30–16:30).
Update (2024): Recent Developments in Serbian Electronic Money Regulations
Since 2018, Serbia has introduced key updates in its electronic money regulations:
- Alignment with EU Directives: Serbia amended its Law on Payment Services to align with the European Union’s PSD2 directive, effective from May 6, 2025. These amendments enhance regulatory oversight and foster innovation in the digital payments sector.
- New Licensing Requirements for EMIs: The National Bank of Serbia (NBS) now requires electronic money institutions to obtain licenses by submitting a business plan, financial projections, and compliance measures. The NBS must respond to applications within three months of submission.
- PayPal’s Operational Status: PayPal remains a foreign electronic money institution in Serbia. Serbian residents can use PayPal for international transactions, but domestic payments between residents via PayPal are still prohibited. The NBS clarified that PayPal’s local operation is possible, but PayPal has not yet registered as a local EMI, limiting its services.
These updates highlight Serbia’s continued efforts to modernize its financial regulatory framework and integrate with global payment systems.
PS: If you conduct transactions through PayPal or other electronic money services, staying informed about evolving regulations is crucial. For expert legal guidance, feel free to reach out to us at [email protected] or +381113281914.