South Korea

General Information

Door to Door sales (DDS), Multi-level sales (MLM), and Sponsoring Door to Door Sales (SDDS) in Korea are subject to the Door-to-door sales, etc. act (referred to throughout as ‘the Act’), the purpose of which, as stated in Article 1, is :

“To protect interests and rights of consumers and raise the market credibility by prescribing matters concerning the fair transaction of goods and services involving door-to-door sales, phone-soliciting sales, multi-level sales, Sponsoring door-to-door sales, continuous transaction and business-soliciting transaction, etc., and thereby to contribute to the sound development of the national economy.”
The act was totally revised on Feb 17, 2012 and came into effect on Aug 18, 2012. The Act’s regulating authority is Korea Fair Trade Commission. For this revision, a task force formed under the commission with the participation of non-governmental experts has discussed it. The watchdog plans to tighten regulations against MLM companies and keep them under closer observation.

* “Door-to-Door Sales” means a transaction in which a seller of goods or a person engaged in the business of supplying a service for a charge sells goods or supplies services by soliciting consumers and then receives an offer for contract or executes a contract (including cases where a seller induces a consumer at a place other than a business place, etc.) and then receives an offer for contract or executes a contract at a business place at a other than a business office, agency or any other place . The participation of the distributors shall not be expanded by more than 3 stages.

* “Multilevel Sales” means the sale of the goods and services (“goods, etc.”) made through the Multilevel Sales Organization (including sales organizations whose levels of distributors is two (2) or less, but have been managed and operated as a sales organization whose levels of distributors are virtually three (3) or more) where a distributor proposes to specific person to be his/her downline distributor, and the participation of the distributors expands by stages (where the levels of the distributors participated shall be expanded by three (3) or more).

* “Sponsoring Door-to-Door Sales” means the case corresponded to “Door-to-Door Sale” and “Multilevel Sales”, but the commission influence only one immediately above distributor.

Pyramid Schemes
A violation of the Act is defined as unlawfulness and it is regulated by the act. Generally, a pyramid scheme is a system establishing a network of sellers, professional or not, where each seller hopes for some benefit resulting from the expansion of this network rather than from the sale of products to the consumer.

Multi-Level Marketing
Multi-level marketing is recognized in Korea as a legitimate marketing. There is no specific prohibition for multi-level marketing.

Prohibition on Products
There are no prohibitions on the sale of any consumer product by direct sellers except drugs, toxic chemicals and insurance. However, price of any single product distributed cannot exceed 1.6 Million Won (including the VAT).

Credit Restrictions Country
There are no regulations with respect to the credit restrictions of direct sellers.

Money Collections
There are no regulations with respect to the collection of money or method of payment. Direct sellers are not limited to collect any payment, cash or card.

Licenses
Door to door sales : Every door-to-door sales business operator shall report his/her firm name, address, telephone number, e-mail address (including the name, resident registration number and address of the representative in cases of a corporation) and other matters prescribed by Presidential Decree to the Fair Trade Commission or the head of a Si/Gun/Gu (referring to an autonomous Gu), as prescribed by Presidential Decree.

MLM sales : The Multilevel Sales Company shall register with the Fair Trade Commission or the mayor of the major city or governor by preparing the following documents.

1. Application describing the trade name and address, telephone number and e-mail
2. Documents evidencing that the capital of the Multilevel Sale Company exceeds the ceiling determined by the Presidential Decree, which is 500,000,000 Won or more
3. Documents evidencing that consumer’s compensatory damage insurance contract, etc. are executed pursuant to Article 37
4. Documents with regard to method of calculating the Sponsoring Bonus and standard for payment thereof;
5. Documents describing matters relating to sales methods, such as inventory management, payment of the Sponsoring Bonus, etc.; and
6. Other documents required for the verification of the identity of a Multilevel Seller as prescribed by the Prime Ministerial Decree.

Sponsoring Door-to-Door sales : The SDDS Company shall register with the Fair Trade Commission or the mayor of the major city or governor by preparing the following documents.

1. Application describing the trade name and address, telephone number and e-mail
2. Documents evidencing that consumer’s compensatory damage insurance contract, etc. are executed pursuant to Article 37
3. Documents with regard to method of calculating the Sponsoring Bonus and standard for payment thereof;
4. Documents describing matters relating to sales methods, such as inventory management, payment of the Sponsoring Bonus, etc.; and
5. Other documents required for the verification of the identity of a Multilevel Seller as prescribed by the Prime Ministerial Decree.

* If SDDS Company can verify 70% of end user sales rate (Omnitrition Exemption Rule), then SDDS Company shall be exempted 3 major regulations(consumer’s compensatory damage insurance contract, limitation of 38% Commission payout rate, limitation of price of single product exceeding 1.6 Million Won)

Status of Direct Sellers
Generally salespersons are independent contractors. They are not employees of the company.

Earnings Claims
Door-to-Door Sales Distributors : no regulations
Multilevel Sales Distributors : The total amount of Sponsoring Bonus that a Multilevel Sales Company may pay to Multilevel Sales Distributors may not exceed an amount corresponding to 35%(SDDS ==> 38%) of the total amount of the prices of the goods. (including VAT)
* Sponsoring Bonus means all economic interests regardless of any denomination whatsoever, which a Direct Selling Company pays to Direct Selling Distributor shall be deemed a Sponsoring Bonus, including sales allowance, arrangement commission, etc.

Taxes and Fees
The taxation on distributors occurs differently depending on their income and they pay the integrated income tax in May next year.

Social Security
No information

Others
No information
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.