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Paypal doesn't support my country yet, but I want to open a small ecommerce site to accept payment from paypal.

  1. Can a friend living in a different country (may be US, Canada, Australia etc.) accept the money in his account and send me the money via Bank transfer? Is this a viable option?
  2. Since I'm the one earning here and not my friend, can he legally avoid tax on these transactions? Please note that I don't have any legal status in those countries.
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Although you see your friend as a mere conduit for your money, PayPal will see him/her as the recipient, and if the amount received in their account is above a certain amount, PayPal will report it to the tax authority on their behalf (IRS in the USA). Your friend is the owner of the PayPal account and the bank account and the money in them.

Receiving a large amount of money and transferring it to another party might trigger a money laundering red flag, as well, which could result in restrictions being placed on your friend's account. This is especially sensitive when the receiving party is a foreign party.

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