Multi-Level Marketings
Argentina
No legislation.
Australia
There are no specific Federal or State multi-level marketing laws although the definition of referral selling in Section 57 of the Federal Trade Practice Act may, under certain circumstances, impinge upon the activities of some multi-level marketing companies. That definition is at Section 57 of the Trade Practices Act 1974.
A corporation shall not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made receive a rebate, commission or other benefit in return for giving the corporation the names of prospective customers or otherwise assisting the corporation to supply goods or services to other customers, if receipt of the rebate, commission or other benefit is contingent on an event after that contract is made.
Austria
No legislation.
Belgium
There is no definition of multi-level marketing in Belgium. Subject to what has been said in the previous section on pyramid selling, multi-level marketing is not prohibited. It is generally carried on by independent workers. Particular attention must be paid to the chain of sub-ordination that may be established between the different levels and the risk that the courts may re-qualify independent workers as salaried workers.
Brazil
Companies of multilevel distribution are those which commercialize products through traders or distributors which can also sponsor others, receiving payments based on the sales made by the sponsored people.
The Brazilian laws do not forbid such distribution system; and those who utilize this system are subject to legal rules to which are subject the companies in general.
The payments concerning to the sales made by the sponsored people are subject to collection of a income tax (directly in the source), as well as in the case of an individual, a contribution for the National Institution of Social Security should be paid.
Canada
Multi-level marketing companies are legislated federally by the Multi-Level Marketing and Pyramid Selling provisions of the Competition Act, Section 55, 1985. Under the amendments to the act of 1992, a ‘multi-level marketing plan’ means: a plan for the supply of a product whereby a participant in the plan receives compensation for the supply of the product to another participant in the plan who, in turn, receives compensation for the supply of the same or another product to other participants in the plan. The revised Section 55 contains measures directed against deceptive practices sometimes found in multi-level marketing selling plans, including but not limited to:
- the exaggeration of earning potential by disclosing non-representative compensation earned by participants;
- compensation for recruitment;
- inventory loading (products sold to recruits in commercially unreasonable amounts);
- required purchases as a condition of participation in a plan;
- failure to provide participants with a right to return a product on reasonable commercial terms.
Chile
Multi-Level marketing companies have a special regulation regarding payment and withholding of VAT. As set forth in exempt resolution N° 52 issued by the Chilean IRS on April 5, 2012, the VAT of the final sale shall be charged in advance by the relevant Multi-Level marketing company. In such a case, sales forces can be exempted from the obligation of issuing invoices, provided that the corresponding withholdings have been made.
Columbia
No legislation.
Czech Republic
No legislation.
Denmark
There is no specific law against Multi-level Marketing.
European Union
Not regulated under EU law. Consult national laws.
Finland
There are no limitations on multi-level marketing. A particular scheme may, however, constitute a breach of the Unfair Competition Act if it is the same as a pyramid scheme.
France
Multi-level marketing systems which are economically viable are accepted. The French Administration established an accurate definition of this distribution channel in a memorandum of 18 October 1995, summarized hereunder :
- the aim of the system must be the sale of products to consumers and not the recruitment of new distributors;
- the Law of 1972 about consumers’ rights, the Law of 1995 about pyramid schemes and the Law of 27 January 1993 about independent sellers’ status must be strictly applied;
- companies must provide complete and accurate information to distributors concerning their rights and obligations (for all commercial, legal, social and fiscal points), their earnings and entrance fees;
- companies must give their direct sellers a written agreement, containing all details of the relationship between the seller and the company;
- the right of entry into the scheme must correspond solely to the cost of investment and the purchase of the necessary stock for sale.
Guatemala
No legislation
Hungary
There is no legal definition of MLM in Hungary. There are no laws against multi-level marketing, which is regarded as a form of organising direct selling.
India
There is no law prohibiting such sales
Indonesia
More information on Mulit-level Marketing
Ireland
There is no legislation specific to MLM operations, apart from the ban on pyramid promotional schemes set out above.
Italy
In Italy, no specific regulation of multi-level marketing exists. MLM companies are subject to the rules regulating the direct selling industry.
Japan
Act on Specified Commercial Transactions imposes strict regulations on companies engaged in MLM. But not to profit the MLM itself. The fact that this business has caused the social problem in the past, industry image does not have to say a harsh extremely bad environment in Japan.
The law imposes a 20 day cooling-off period on a MLM
＊For your information
The following is the definition of MLM in Act on Specified Commercial Transactions　
Article 33　The term “Multilevel Marketing” as used in this Chapter and Article 58-7, paragraphs (1) and (3) and Article 67, paragraph (1) means the business of sale (including arranging the sale) of articles (including the rights to use facilities or to be provided with services; the same applies hereinafter) or the provision (including arranging the provision) of services in exchange for payment, wherein a counterparty is induced to resell the articles that have been sold thereto (hereinafter referred to as “Goods” in this Chapter and Article 58-7, paragraph (1), item (i)(a)) (“resell” means purchasing the Goods and then selling them; the same applies hereinafter), wherein a counterparty is induced to sell Goods on consignment (meaning being consigned the Goods and then selling them; the same applies hereinafter), wherein a counterparty is induced to arrange the sale of Goods, wherein a counterparty is induced to provide the same kind of services (meaning providing the same kind of services that have been provided thereto; the same shall apply hereinafter), or wherein a counterparty is induced to arrange for such services to be provided, using the possible receipt of a specified profit (meaning all or part of the transaction fees provided by another person who resells, sells on consignment, or arranges the sale of Goods, all or part of the transaction fees provided by another person who provides the same kind of services or arranges for such services to be provided, and any other profits that satisfy the requirements specified by ordinance of the competent ministry; hereinafter the same applies in this Chapter and Article 58-7, paragraph (1), item (iv)), and wherein transactions that involve a specified burden (meaning the purchase of Goods, payment of consideration for services, or provision of a transaction fee; hereinafter the same applies in this Chapter and Article 58-7, paragraph (1), item (iv)) are carried out with the counterparty to sell or arrange the sale of Goods, or wherein transactions that involve a specified burden are carried out with the counterparty to provide or arrange the provision of the same type of services (such transactions include any change in the terms of a transaction; hereinafter referred to as “Multilevel Marketing Transactions”).
Lithuania
It is allowed. However there is no official definition of multi level marketing.
Malaysia
There is no specific legislation for multi-level marketing (MLM) and MLM is presently covered under the DSA 1993.
Mexico
There is no specific legislation.
Netherlands
No specific legislation on multi-level marketing exists. Multi-level marketing is governed by the same regulations as any other form of direct selling (ie, cooling-off period).
New Zealand
Network Marketing is legal in New Zealand and is formally recognised under the Fair Trading Act as a legitimate selling activity. The use of the terms matrix has provided a considerable confusion over what is a legitimate network marketing operation and what is a Pyramid Scheme. It is however not illegal to use the term.
Network marketing companies need to be careful in what representations are made by contractors or salespeople as those representations are deemed in law to be those of the company and may breach any of three sections of the Fair Trading Act if incorrectly done. This includes earnings claims. The three sections of the Fair Trading Act that are particularly relevant are:
- Section 20 – Referral Selling
- Section 22 – Misleading representations about certain business activities
- Section 24 – Pyramid Selling Schemes
Other areas of the Fair Trading Act that Network Marketers need to be very careful of are:
- Section 9 – Misleading and deceptive conduct generally
- Section 12 – Misleading conduct in relation to employment
These last two sections relate mostly to the recruitment of contractors and the manner that this is done whether by the company or by independent contractors building their down-lines.
A new section of the Fair Trading Act will be added for “Unsubstantiated Claims” and this will be directly able to be used to enforce earnings claims, product performance claims where they are not able to be substantiated by facts or clinical trials etc.
No DSA member has been prosecuted under any of these provisions and in relation to section 12 only one case exists which relates to a commission agents for a non-member.
Non-member Direct Sellers have been prosecuted under Section 9 on numerous occasions in recent years for using misleading information to obtain sales but neither were Network marketers.
Norway
No regulations.
Philippines
Other than the prohibition against the use of chain distribution plans and pyramid sales schemes already mention, there is no other law regulating multi-level companies.
Multi-level direct selling companies can avoid the anti-pyramid provision of the Consumer Code by ensuring that the right to recruit participants into the sales scheme is not conditional upon the making of an investment and that profits are not derived primarily from mere recruitment.
Poland
No legislation.
Portugal
There is no law or regulation in this field. No restrictions are fixed by any law, aside those above reported on chain network, pyramid sales, or snowball schemes.
Singapore
See previous section.
Slovak Republic
No legislation.
Slovenia
No legislation
South Africa
All multi-level or direct selling companies are required to register with the Registrar of Companies, as do all other companies.
Multi-level Marketing companies are regulated by the Consumer Protection Act and the Code of Conduct for Direct Selling Companies.
South Korea
Multi-level marketing is recognized in Korea as a legitimate marketing. There is no specific prohibition for multi-level marketing.
Spain
Multi-level marketing is regulated under article 22 of Law 7/1996 on Retail Trade, modified by Law 29/2009.
Multi-level selling is defined as a special form of trade where a manufacturer or wholesaler sells his products or services to the final consumer through a network of traders and/or independent distributor agents coordinated within the same commercial network and whose economic profits are obtained by means of a sole margin on the selling price to the public, and which is distributed through the perception of variable percentages over the total billing generated by the whole of the consumers, traders and/or independent distributors integrated in the commercial network, and in proportion to the volume of business that each component has created.
Between the manufacturer or the wholesaler and the final consumer, the law only accepts the existence of one distributor.
It is prohibited to organize the selling of products and services when:
- The economic profit of the organization and the sellers is not exclusively obtained from the sales or services distributed to final consumers, but from the recruiting of new sellers, or
- It is not adequately guaranteed that the distributors have a working contract or fulfil the requirements that are legally required to develop a commercial activity, or
- It exists the obligation by the new sellers to make a minimum purchase of the products distributed without a buy-back provision under the same conditions.
Under no circumstances the manufacturer or wholesaler holder of the network shall be able to condition the access to the network to the payment of a quota or entry fee which is not equivalent to the products and promotional, informative or educational material delivered to a similar price of other materials in the market and whose amount will not exceed a figure that will be fixed by future legislation.
Sweden
There are no laws against multi-level marketing, which is regarded as a form of organising direct selling. MLM companies being members of the Swedish DSA are bound by the Codes of Conduct adopted by the DSA in consultation with the National Board for Consumer Protection and forming part of an agreement about self-regulation between the DSA and the Board. For the text of the Codes of Conduct and other information from the Swedish DSA, please refer to www.direkthandeln.org.
Taiwan
Article 4 of MLMSA states
The term “multi-level marketing” as used in this Act means the marketing practice to establish multi-levels organization by having participants introduce new participants into multi-level marketing enterprise, and promote and sale goods or services.
Thailand
MLM is one of the marketing system, the enterprises or the manufacturers has quality product either goods or services to access to the mass consumers. “The independent distributor or direct sales representative” is a person who receives the right of ownership of product to offer to the consumers. They can create their team or group as well as expanding their group to be multilevel for the strong purchasing capacity and increase high volume of product sales. The product discount and commission of sales is the main remuneration of the MLM system.
Turkey
There is no law specifically covering multi-level marketing. These companies are subject to the rules regulating the direct selling industry.
United Kingdom
This is governed by the Trading Schemes Regulations 1997. These regulations apply within the UK and lay down rules relating to the contents and form of:
- Recruitment advertisements and recruitment materials (including on websites).
- Direct Seller Agreements.
Failure to comply with the law is a criminal offence. Signing up direct sellers online is probably legal but only if the requirements of the Trading Schemes Regulations 1997 are complied with.
The Trading Schemes Regulations also place a ban on a direct seller paying (or committing himself to pay) more than £200 during the first seven days. Thus a starter pack which a direct seller commits to buying when signing up cannot legally cost more than £200. It is the company which commits the criminal offence if in the agreement or in the following seven days it accepts from the direct seller any commitment to pay more than £200. Thus the company needs to ensure that its computer system is programmed to block acceptance (during the direct seller’s first seven days) of any order which would take the direct seller’s commitments over £200. If at the time of sign-up (or within the following seven days) the direct seller agrees to an autoship arrangement, that will infringe the ban – even if the monthly amount is, say, only £15 and even if the autoship arrangement is cancellable at any time.
The following are available to members of the DSA:
-
- DSA Summary Sheet of Legal Requirements for Recruitment Advertisements.
- DSA Checklist for the contents of Direct Seller Agreements.
- DSA model direct seller agreement.
- DSA leaflet on Online Sign-up.
United States
While there is no specific federal regulation of multi-level marketing companies, the states of Georgia, Louisiana, Maryland, Massachusetts, Wyoming and the Commonwealth of Puerto Rico require certain filing requirements for multi-level marketing companies. In addition, Montana has a multi-level filing requirement as part of its anti-pyramid statute, although USDSA members are exempt from this requirement. In these states, ‘multi-level distribution companies’ generally are defined as companies which market products or services through independent agents or distributors at different levels and in which participants recruit or sponsor others and receive compensation based upon the recruit’s sale of products.
Most states require the company to appoint an agent for the service of process and abide by certain regulations relating to allowable income presentations, payment of compensation to participants and the offer to repurchase unsold inventory.
Direct selling marketing plans which compensate a participant for the sales made by the participant as well as the sales of those the participant has sponsored or recruited must ensure that compensation in the plan is ultimately paid only for the distribution of products or services to ultimate users-or individuals who consume or use the products or services, whether or not they are participants in the plan. Such marketing plans typically impose low fees for the right to engage in the direct selling opportunity, involve minimal investment requirements in sales materials or inventory and provide participants in the plan a bona fide right to return unsold products to the company at reasonable commercial terms at 90% of the original purchase price.
Uruguay
No legislation.