Electronic Money Institutions – PayPal

Money, in its traditional form served the purpose perfectly, as long as the market involved one small town and one craftsman. Now, when the Internet and global communications made whole world a small town, challenges of the trade require new solutions in the traffic of goods and services.

With internet and credit cards, internet and credit card frauds came. Every additional payment with the card and deposit of your data with different websites exposes you to the risk of your data be stolen and/or abused.

In order to avoid such an abuse, as well for a numerous other reasons, electronic money services, such as PayPal, have been founded, and this text is about the PayPal. This one and similar services allow you to pay the goods and services over the Internet without communicating about card details to various online services, because the service converts the money from your bank account into the electronic money in order for transaction to be carried out, which is then converted to money in the customer’s bank account, on his request, which makes transaction safer and more relaxed for users.

How to Connect to PayPal Service?

Companies can use this service by obtaining a Visa Business card from your business bank, which allows you to pay for online services, and which you will later connect with your PayPal account.
On PayPal, you will create a Business account, where you shall enter your company’s information and link that account with your Visa Business card. Then, you will be charged with EUR 1.5 for account verification, and this money will be refunded to you later.


PayPal is seen as a foreign issuer of electronic money by the Payment Services Act of Serbia. What implications it has for business conducted through it, we will see from the text that follows.

The Law on Foreign Exchange Management states that residents, meaning domestic companies and individuals, can make payment transactions abroad through the issuer of electronic money – for payment and collection based on the electronic purchase of goods and services. Resident funds held by a foreign electronic money institution shall not be considered a deposit in terms of this Law, which means that they are not obliged to keep these funds under the conditions and in a manner prescribed by the National Bank of Serbia.

As the law implicitly regulates, and which is confirmed by Ministry of Finance in its opinion no. 011-00-00598/2015-16 from 13.1.2016. which states that transactions with electronic money issuers, including PayPal, are to be performed exclusively with non-residents. A transaction between two residents, that is, between domestic companies and persons, would constitute a violation of the provisions of the Foreign Exchange Law.

PayPal Service is exempt from the responsibility to check participants in sales transactions, and therefore the full responsibility for the compliance is on the resident – trader for eventual collection that he would have made from another resident.

The penalty provisions of the Law on Foreign Exchange Management foresee that those legal entities that act contrary to the provisions prohibiting trade with residents shall be punished by a fine from RSD 100,000.00 to RSD 2,000,000.00, and the responsible person in that legal entity with a fine of RSD 5.000,00 up to RSD 150,000. An entrepreneur – resident, he risks being punished by a fine of RSD 10,000.00 to 500,000.00.

Tax – administrative aspect

Although paying through PayPal services is legal, it does not exclude other trader obligations. Namely, for all goods and all services that you charge through this service, you must issue an invoice to the customer or entity that is the user of the services you provide, and when you withdraw the money from your account, it will appear in your foreign currency account within 5-7 days, and you will, in co-operation with your accountant, justify the money with an invoice that you have sent to the buyer, that is, the user of your services, and PayPal’s report on the payment made.

What the Tax Administration of the Ministry of Finance has warned are services provided by individuals to foreign legal entities that resemble employment, and are paid through PayPal and similar services. This kind of business is not allowed, that is, the one who deals with such activities is obliged to do a “self-taxation” as anindividual, or to be established as an entrepreneur or legal entity, in order to operate in accordance with the law.

What is important to note is that the Tax Administration has mechanisms and can have an insight into the inflows into accounts of individual, after which significant costs and penalties can arise for that individual.


Regarding the regulations from a few years ago, business through electronic money services is significantly liberalized today, although only one company has been registered in Serbia in the Register of electronic money institutions – iPay See d.o.o. Belgrade. Only when we develop domestic electronic money institutions to the level at which they can compete with the world’s most popular services, or when services such as PayPal are registered in Serbia, only then we can speak about the massive use of these services on the domestic market.

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