This is indeed a Paypal problem. I went through this with revolut business accounts. Paypal will not let you (as of the time) link an IBAN starting with GB to your account in all/certain EU countries. It will tell you that the IBAN is invalid. Change GB to anything else and it doesnt complain. It is not about an invalid IBAN but simply the country code probably because of the special nature of the UK in the EU with GBP etc.
Here is the way to link your revolut IBAN EUR account to a European Paypal account properly as funding, withdrawal, direct debit etc source:
Try to add your EUR IBAN in Paypal. If it tells you “Invalid IBAN” and you cannot proceed:
Call up Paypal Support. Tell them you cannot add your bank account. Tell them It is a proper EURO IBAN account with full direct debit etc features and ask them to add it manually. They will ask for your IBAN and bank. If you are unlucky they will respond with “We do not support Revolut”. DO NOT accept that. Stay polite and explain that you do not have a shared / virtual Revolut account but a real EURO IBAN -BANK- account with full sepa / direct debit features. Ask them to manually add the account. Do this with multiple support people if necessary.
The Support person will send you a link where they want you to send them the iban, bic etc maybe even an account statement showing your name + IBAN etc. In this email state again that you have a full sepa / direct debit etc account and not a virtual whatever (just say it even if its all EMI accounts).
Paypal will then add your Revolut Privat / Business account to your Paypal account and send you a link to the SEPA / Direct Debit agreement which you have to fill out. The address in there should be your private address btw not Revolut’s.
After that step they will proceed with the standard verification process of sending you 2 cent transactions which you will have to confirm in the Paypal interface and voila your Revolut account is linked as a proper bank account with all features of withdrawal + funding + limits removal in your Paypal account.