I just went through the paypal reconnect process on itch.io and also was prompted to upgrade my paypal account to a business account. I don't know about potential complications from being outside the US, but I don't think you need to register or incorporate a business. When it asks what type of business organization you have, once of the options is "sole proprietorship" which just means a business you own that's not incorporated, which is what you have if it's just you selling stuff or doing contract work (I registered as an LLC but that's taxed as a sole proprietorship since it's just owned by me). I didn't have to change anything else in my paypal account. The only glitch I ran into, which is more of a UI bug, is that the second question about what kind of products/services you provide lets you type in anything, but it doesn't let you proceed if you don't select from the autocompletion list, so I wasted some time figuring that out.