Malaysia

Malaysia

Report Topics:

1:- General Information

2:- Cooling-off Period

3:- Pyramid Schemes

4:- Multi-Level Marketing

5:- Prohibition on Products

6:- Credit Restrictions Country

7:- Money Collections

8:- Licenses

9:- Status of Direct Sellers

10:- Earnings Claims

11:- Taxes and Fees

12:- Social Security

13:- Others

General Information

door to door and mail order selling (including selling by telephone) in Malaysia is subject to the Direct Sales and Anti-Pyramid Scheme Act 1993 (DSAPSA) which lays down the conditions under which business may be conducted, defines requirements of direct sales contracts and empowers the Minister to make regulations. The following is the link to the Direct Sales Act 1993 (the amended Direct Sales and Anti-Pyramid Scheme Act 1993 is not published yet): http://www.kpdnkk.gov.my/web/guest/akta-jualan-langsung-1993

The Act’s regulating authority is the Ministry of Domestic Trade, Co-operatives and Consumerism.

Cooling-off Period
Section 2 of the DSAPSA defines the cooling-off period as a period of ten (10) working days after the date of the making of a direct sale contract.

Section 23 of the Act requires all door-to-door and mail order sales having such value as may be prescribed to:

-be in writing;
-contain the statement ‘this contract is subject to a cooling-off period of ten days’ immediately above the place provided for signature of the purchaser, printed in upper case in type not smaller than 18 point Times;
-be signed by both vendor and purchaser.

The purchaser must be given a duplicate copy of the contract immediately it is made.

Section 24(1) of the Act requires every contract to contain the following:

-a detailed description of the goods or services to be supplied;
-the contractual terms, including the total amount to be paid or provided by the purchaser;
-the time, place and method of payment;
-the time and place for delivery of the goods or for the performance of services;
-notices in the prescribed form, informing the purchaser of his right to rescind the contract before the expiry of the cooling-off period.

Failure to comply with the above renders the contract void.

Section 25 of the Act lays down the conditions for the operation of the cooling-off period and Section 26 sets out steps for rescission.

Pyramid Schemes
Pyramid Schemes are prohibited under Part VA of the DSAPSA.

Section 27B states that;

    1. No person shall promote or cause to be promoted a pyramid scheme.
    2. Any person who contravenes subsection (1) shall be guilty of an offence and shall, on conviction, be liable—
      1. where such person is a body corporate, partnership or society, to a fine of not less than one million ringgit and not more than ten million ringgit and, for a second or subsequent offence, to a fine of not less than ten million ringgit and not more than fifty million ringgit;
      2. where such person is not a body corporate, partnership or society, to a fine of not less than five hundred thousand ringgit and not more than five million ringgit or to imprisonment for a term not exceeding five years or to both and, for a second or subsequent offence, to a fine of not less than one million ringgit and not more than ten million ringgit or to imprisonment for a term not exceeding ten years or to both.
    3. Where a person, being a director, manager, secretary or other similar officer of a body corporate, a partner in a partnership or an office-bearer in a society, as the case may be, is guilty of an offence under this section by virtue of section 38, he shall be liable to the penalty provided for under paragraph (2)(b).”.

Features of Pyramid Scheme or Arrangement for the purpose of the Direct Sales and Anti-Pyramid Act 1993 are as follows;

 

      1. The promotion of a scheme or the payment of bonus or other benefits is solely or primarily through recruitment or introduction of participants, into the pyramid scheme, plan, operation or chain process rather than the sale of goods, services or intangible property by the participants.
      2. The bonus is paid to the participants or the other benefits are received by the participants solely or primarily through the recruitment or introduction of other persons into the pyramid scheme, plan, operation or chain process rather than the sale of goods, services or intangible property by the participants or other persons.
      3. A written contract or statement which describes the material terms of the agreement is not provided to participants who join the pyramid scheme, plan, operation or chain process.
      4. A mandatory purchase of goods, services or intangible property or a minimum payment or sale requirement is imposed as a condition to satisfy the eligibility or start-up requirement for participation or payment of bonus or other benefits in the pyramid scheme, plan, operation or chain process.
      5. The participants are required to purchase goods, services or intangible property in unreasonable amount which exceeds the expectation to be resold or consumed within a reasonable period of time. The participants may not be given full liberty in buying but they are pressured to purchase selected goods packages to meet sales requirements to qualify them for position or bonus in the pyramid scheme, plan, operation or chain process.
      6. The refund policy for goods, services or intangible property purchased by participants or consumers is not provided.
      7. The buy-back policy by the operator of the pyramid scheme, plan, operation or chain process for currently marketable goods, services or intangible property upon the request of participants within reasonable terms or agreement is not allowed or provided for.
      8. A strict or unreasonable structural requirements of the pyramid scheme, plan, operation or chain process for the eligibility of participants to be paid bonus or other benefits.
      9. Withdrawal by participants from the pyramid scheme, plan, operation or chain process is not allowed.
      10. The participants are allowed or encouraged to buy up more than one position or right to participate in the pyramid scheme, plan, operation or chain process.

Explanation 1 – A reference to the word “bonus or other benefits” shall relate to return or profit gains from a pyramid scheme, plan, operation or chain process. Explanation 2 – A reference to the words “material terms” shall include buy-back policy, cooling-off period, warranty and refund policy. Explanation 3 – The goods or services shall not be considered as currently marketable and shall not be subject to the specified features if the goods or services are seasonal, discontinued or special promotional items which are disclosed to the participants at the time of sales.”.

Multi-Level Marketing
As Multilevel Marketing is a form of compensation in direct sales companies, the term DIRECT SELLING is more commonly used in Malaysia to describe the industry. The term Direct Selling in Malaysia encompasses Multi -Level Marketing (MLM), Single Level Marketing (SLM) Mail Order (MO) and Single Level/Mail Order (SL/MO).

Prohibition on Products
The DSAPSA does not specify any prohibitions on sales of specific products. However, Magnetic Products (such as pendants, bracelets etc. without any scientific and substantiated claims) are not allowed.

Direct selling companies who wish to introduce new products must seek prior approval from the authority before distributing the products. There are no specific guidelines on what are the products that can be sold or cannot be sold but all health products must be registered with the Drug Control Authority, Ministry of Health before they can be sold.

Credit Restrictions Country
The DSAPSA does not specify any credit restrictions.

Money Collections
No monies can be collected before the expiry of the cooling-off period as provided under Section 25(4) of the DSAPSA.

Section 25(4) states that:

‘No vendor or other person shall accept money or consideration from a purchaser under a contract made under this Act before the expiry of the cooling-off period.’

 

However, Sections 26 and 27 offers the option for the purchaser to rescind the contract thus rescinding the cooling-off period and the contract in its entirety. This contract must be rescinded by mutual consent.

Licenses
A company intending to operate a direct selling business must apply for a direct sales license before it can commence operations as provided under Section 4 of the DSAPSA.

Section 4 states that:

‘ no person shall carry on any direct sales business unless it is a company incorporated under the Companies Act 1965 and holds a valid licence granted under Section 6.’

 

Status of Direct Sellers
Salespersons are independent contractors. They are not employees of the company. In some companies that practices Single Level Marketing, the salespersons are employees of the company. The authority stipulates that companies are responsible for the conduct of their distributors.

Earnings Claims
Earnings claims should be substantiated.

Taxes and Fees

      1. For Individual (Independent Contractors but limited to those without companies)All individuals in Malaysia are liable to pay tax on income accrued in, derived from or remitted to Malaysia. Sources of income which can be taxed includes gains and profits from trade, profession and business, salaries, remunerations, gains and profits from an employment, dividends, interests or discounts, rents, royalties or premiums, pensions, annuities or other periodic payments and other gains or profits of an income nature not mentioned above.Taxable income is arrived at after adjusting for expenses incurred wholly and exclusively in the production of the income.The rate of tax depends on the resident status of the individual which is determined by the duration of his stay in the country (as stipulated under Section 7 in the Income Tax Act 1967). A resident individual is taxed on his chargeable income at graduated rates from 2% to 30% after the deduction of tax relief.However, an individual with chargeable income of less than RM2,500 is not taxed. The chargeable income of an individual resident is arrived at by deducting from his or her total income the personal relief. Tax liability of a resident individual is reduced by rebates. Income tax matters in Malaysia are under the jurisdiction of Inland Revenue Board of Malaysia.
      1. For Companies
          1. Resident CompanyA Resident company is assessable on income derived from Malaysia and income remitted to Malaysia from sources outside Malaysia. Starting Year of Assessment (YA) 1995 onwards only income derived from Malaysia are taxable. Banking, insurance, shipping and air transport businesses are taxed on world income scope.
          1. Non-Resident CompanyA Non-Resident company is liable to Malaysian tax when it carries on a business through a permanent establishment in Malaysia and is assessable on income derived only from sources within Malaysia.
      2. Resident Status of CompaniesA company is deemed to be resident if at any time during a basis year for a year of assessment, the management and control of its business is exercised in Malaysia. Management and control is normally considered to be exercised at the place where directors’ meetings are held.

Social Security
Social Security is not applicable in Malaysia. However, there is a similar scheme known as the Employee Provident Fund where the employer and employee are legally obliged to contribute a certain percentage of their monthly income (11% and 12% respectively) towards this fund . This funds invested belongs to the employee.

As for independent distributors, they have an option of contributing to this fund. The company which the distributor is in contract with, is not obliged to contribute.

Others
Other laws and regulations affecting direct selling are:

-Sale of Goods Act 1957
-Contracts Act 1950
-Companies Act 1965
-Price Control and Anti-Profiteering Act 2011
-Competition Act 2011
-Trade Description Act 2011

Section 1(4) of the DSAPSA states that where there is any conflict between provisions of that act and the statutes set out above, the provisions of the DSAPSA shall prevail.

The WFDSA International Guide to Direct Selling Legislation is a guide and is not exhaustive either in terms of subjects presented or for all areas of concern to direct selling companies. It is intended to cover general areas of concern. The Guide is not a substitute for legal counsel but only intended to alert you to the general nature of laws and regulations affecting the direct selling industry in a particular country. Consequently, before beginning an operation in any foreign country, it is strongly recommended that competent legal counsel be consulted. While every effort has been made to insure that the information contained in this Guide is accurate, the variety of sources used makes absolute verification difficult. Further, laws and regulations also can change from time to time without notice. Therefore, the WFDSA cannot be held liable for the information included in this publication.

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