New Multi-level Sales Law in Taiwan

March 29, 2014

A new law is promulgated in Taiwan on January 29 this year to cover certain loopholes in the old regulation (“Old Regulation”), and to expand supervision of the businesses engaged in multi-level marketing scheme and protection of the participants as well as the public.  The old regulation was part of the Fair Trade Act, which primarily deals with subject matters of merger and unfair competition, and in order to have a better focus on the subject matters to which multi-level sales relate, a new Multi-level Sales Supervision Law (“New Law”) has been enacted for that purpose.  There are many important differences between the Old Regulation and the New Law, which will be briefly discussed below.

The New Law attempts a new definition of what constitutes multi-level sales business (“MLS business”) by removing the requirement of who is a participant of the MLSB; that is, in the Old Regulation, a participant of the MLS business must initially pay certain consideration to become a participant of the business, following which the business shall be considered a multi-level sales business. Many businesses have been able to utilize this loophole to their advantage to avoid being considered a MLS business in the past. The relevant authority in charge of the administration of the MLS businesses has noted that paying consideration is an indicator of a possibility that a MLS business might not be legitimate but should not be a definitive requirement of the participant.  The concept of “consideration” is defined broadly in the law to include any payment of money (for purchases or otherwise), provision of service and/or undertaking of an obligation.

In addition to the above, the New Law clearly requires a MLS business to have it ready its financial statements by May 31 every year for inspection purposes and establishes a clear threshold based on the amount of either a MLS business’s annual sales or its legal capital such that any MLS business must have its financial statements audited by CPAs if such a threshold has been met.  Among other things, the New Law seeks to establish a dedicated fund for the protection of the rightful interests of MLS businesses and their participants and to that end, donations and annuities will be required from MLS businesses.