Have you ever wondered if it’s safe to use payment systems like PayPal for international transactions? Yes, it’s very convenient—easily make payments from anywhere in the world, but in light of current tax requirements, especially those like CRS (Common Reporting Standard), this convenience may bring unexpected risks. So, let’s explore why you should be cautious when using payment systems like PayPal, and how to minimize those risks.
CRS, or Common Reporting Standard, is an international standard developed to combat tax evasion through the concealment of income in foreign jurisdictions. Introduced by the Organization for Economic Co-operation and Development (OECD), it mandates the automatic exchange of tax information between countries to detect undeclared income.
For payment systems like PayPal, this means they are required to report certain financial transactions of users, especially if they hold accounts in countries that support CRS. This can create additional challenges for those who wish to keep their financial activities private.
PayPal and other similar payment systems are obliged to comply with CRS rules if they operate in countries that have signed the relevant agreements. This means that even if you receive or send money via PayPal in a low-tax jurisdiction, your transactions might come under the scrutiny of tax authorities in other countries.
For example, if you are a Ukrainian citizen but work through PayPal with clients in Europe or the U.S., tax information may be automatically exchanged between the countries where you carry out financial transactions. This allows tax authorities to detect income that has not been declared.
One of the biggest risks of using PayPal in the context of CRS is the potential for tax penalties for undeclared income. Since payment systems are now required to report transactions, tax authorities may discover that you did not include your foreign income in your tax returns. This can result in significant fines and penalties, as tax evasion is a serious legal offense.
Tax authorities may initiate an audit of your financial activities if they notice large amounts on PayPal accounts, especially if those funds are not reflected in tax declarations. This can delay the processing of your tax filings and cause unnecessary complications.
One of the main reasons people enjoy using payment systems like PayPal is the level of anonymity they provide. However, with the introduction of CRS, this anonymity is reduced. Governments now have access to information about your financial transactions, and they may conduct audits if necessary to verify whether your income complies with the legal requirements.
Given CRS requirements, PayPal and other payment systems may change their terms of service. This could include new verification requirements for users, transaction limitations, or even account closures if the payment system cannot comply with CRS rules. Therefore, users with significant amounts of money in payment platforms should be prepared for potential changes.
Anastasia is a freelancer living in Ukraine who receives most of her payments through PayPal from foreign clients. She has never reported this income in her Ukrainian tax returns, as she assumed that her foreign earnings were not subject to taxation in Ukraine. However, after the implementation of CRS, her transactions were automatically reported to the Ukrainian tax authorities. As a result, the tax authorities initiated a review of her financial activities and requested that she submit the appropriate reports. Anastasia had to pay penalties for undeclared income and correct her previous tax returns.
The best way to avoid risks is to declare all income on time and correctly. If you receive payments through PayPal or similar platforms, be sure to include this income in your tax returns. This will help you avoid fines and penalties for tax evasion.
Ukraine has agreements with many countries to avoid double taxation. This means you can avoid being taxed twice on the same income if you properly declare your foreign earnings and take advantage of the benefits offered by these agreements. This helps reduce the tax burden on foreign income.
To reduce risks, make sure the payment platform you use complies with CRS requirements. If you work with many foreign clients, consider using payment systems that ensure safe and legal financial transactions.
Using payment systems like PayPal in the age of CRS presents certain tax risks for users. It’s important not to forget your tax obligations, declare income correctly, and stay up-to-date with any changes in tax legislation. By doing so, you can avoid penalties, audits, and other complications.
Want to learn more about your tax obligations when using international payment systems? Contact our experts for advice! We will help you properly declare foreign income and avoid tax issues.
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Serhii Floreskul
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Violetta Loseva
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