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Multilevel marketing (MLM) is a model that originated in the US and evolved from the direct selling industry as it expanded in scale. In Taiwan, MLM has become a widely adopted business strategy, commonly utilised by enterprises as a channel for product promotion and consumer outreach.

Prior to 2014, MLM activities in Taiwan were governed by the Taiwan Fair Trade Act and its subordinate legislation, the Supervisory Regulations Governing Multi-Level Sales.

In response to the growing number of fraudulent schemes disguised as legitimate MLM operations, many of which gave rise to significant social concerns, Taiwanese regulators repealed the Supervisory Regulations Governing Multi-Level Sales in 2014, and a dedicated statute, the Multi-Level Marketing Supervision Act (MLMSA), was enacted to enhance the legal framework and strengthen regulatory oversight of MLM enterprises in Taiwan.

Definitions and structure

MLM, MLM enterprise and distributor. Pursuant to the MLMSA, multi-level marketing refers to a business model in which participants, referred to as distributors, promote or sell products or services through a tiered network composed of individuals they have recruited. This structure results in a multi-level organisation designed to expand sales and market reach by leveraging interpersonal relationships.

An MLM enterprise is defined as any company, business entity, organisation or individual that plans or carries out the abovementioned MLM model. The MLMSA further provides that foreign businesses, their distributors or third parties that introduce or implement multilevel marketing schemes or structures in Taiwan are also deemed to constitute MLM enterprises and are thus subject to the same regulatory requirements.

In addition, a distributor under the MLMSA is defined as any person who joins an MLM enterprise to promote or sell products or services and receives commissions, bonuses or other forms of economic benefit. Distributors may also recruit others into the organisation, thereby earning additional financial incentives based on the sales performance or recruitment activities of their downline participants. Even persons who join under certain conditions, such as acquiring the right to sell products or recruit others only after specific criteria are met, are regarded as distributors from the moment the agreement is executed.

Scope of products. In the context of multilevel marketing, the term products refers to tangible goods. However, services, including internet access and other intangible offerings, are also commonly distributed through MLM structures. Since the enactment of the MLMSA, the MLM sector in Taiwan has experienced rapid growth and has become an important channel for the distribution of both goods and services.

Operational characteristics of MLM models. At its core, MLM is built on a business plan or operational framework that relies on the replication of personal networks to drive sales. Participants not only purchase and consume the products themselves but also engage in retail sales to external consumers and recruit new members into the organisation. As individual networks expand, they collectively form the broader MLM structure. The ability to integrate consumption, retail and recruitment into a single model is a key feature distinguishing the model from other distribution methods.

Regulation and governance

Pre-commencement filing requirements. Before initiating any multi-level marketing activities, an MLM enterprise is required to file a report with the Taiwan Fair Trade Commission (TFTC). The filing should include certain statutory information, such as the enterprise’s basic corporate details and principal place of business, and the structure of the MLM system and the conditions for distributor participation. It must also include the terms of the proposed participation agreement to be executed with distributors, as well as the details regarding the products or services to be marketed (including their types, prices and sources).

Failure to comply with this requirement may result in a fine ranging from NTD100,000 (USD3,457) to NTD10 million. Depending on the severity of the violation, the TFTC may also order the dissolution of the enterprise, mandate the cessation of business or suspend its operations for a period of up to six months.

Disclosure obligations prior to distributor participation. Before a distributor joins an MLM plan or organisation, the enterprise is required to disclose the following information. All disclosures should be accurate, complete and free from any misrepresentation, concealment or misleading statements:

1. 1. The capital amount and business turnover of the MLM enterprise;
   2. The MLM compensation structure and conditions for distributor participation;
   3. Applicable laws and regulations governing MLM activities;
   4. The rights, obligations and liabilities of distributors, including conditions for withdrawal and the resulting legal consequences;
   5. Detailed product or service information; and
   6. If applicable, the method, criteria and rationale for deducting depreciation or value loss when repurchasing goods or services.

Violation of this requirement may result in a fine ranging from NTD50,000 to NTD2 million, depending on the severity of the violation.

Written participation agreement requirement. An MLM enterprise shall, on a distributor’s enrolment in its MLM plan or organisation, enter into a written participation agreement with the distributor and provide the original copy, which may be executed in electronic form. Violation of this requirement may result in a fine ranging from NTD50,000 to NTD2 million, depending on the severity of the violation.

Financial and operational recordkeeping. An MLM enterprise should prepare and maintain, at its principal place of business, the balance sheet and income statement for its MLM operations from the preceding fiscal year no later than the end of May each year. The enterprise is required to retain monthly records for a period of five years, covering organisational development, sales of products or services, bonus distributions and return handling within Taiwan. Failure to comply with these requirements may result in a fine ranging from NTD50,000 to NTD2 million, depending on the severity of the violation.

Prohibited conduct by MLM enterprises. To ensure fairness in MLM practices, the MLMSA requires that distributors’ income be primarily derived from the promotion and sale of products or services at reasonable market prices, rather than from the recruitment of new participants. Any violation of this restriction may result in imprisonment for a term of up to seven years and a fine of up to NTD100 million. The MLM enterprise may be ordered to dissolve, cease business operations or suspend its operations for a period of up to six months.

The enterprises are prohibited from engaging in the following conduct:

1. 1. Requiring distributors to pay fees that are clearly disproportionate to actual costs under the pretext of training, seminars, networking events, meetings, advancement programmes or similar activities;
   2. Demanding excessive or unreasonable payments in the form of security deposits, penalties or other charges;
   3. Inducing distributors to purchase quantities of products that clearly exceed what an ordinary person could reasonably sell within a short period, unless payment is deferred until resale;
   4. Granting preferential treatment to specific individuals in violation of the MLM plan or structure, thereby impairing the interests of other distributors;
   5. Improperly inducing a distributor to purchase or possess more than two rights to promote the MLM organisation; or
   6. Imposing any other obligations on distributors that are manifestly unfair or unconscionable.

Violation of these prohibitions may result in a fine ranging from NTD50,000 to NTD2 million, depending on the severity of the violation.

Recent TFTC actions

Recent enforcement actions taken by the TFTC for violations of the MLMSA have primarily involved the following types of non-compliance:

1. 1. Failure to enter into a participation agreement with the distributor at the time of enrolment in the MLM plan or organisation;
   2. Failure to file a report with the commission prior to the commencement of MLM activities; and
   3. The promotion of the activities through exaggerated or false claims about distributor income.

For example, since January 2023, Vegen Asia Taiwan Branch (Singapore) introduced the “Vyvo SocialFi Reward Programme” of Vyvo SocialFi in Taiwan and began recruiting members to participate in Vyvo’s MLM operations. However, Vegen Asia failed to file the required report with the TFTC prior to commencing such activities. As a result, the commission imposed an administrative fine of NTD500,000 on Vegen Asia.

DENTONS
3F, No.77, Sec.2, Dunhua S. Rd., Daan District,
Taipei City, Taiwan
Tel: +886 2 2702 0208
Email: james.hsiao@dentons.com.tw