Most foreign-invested companies in Malaysia discover the Direct Sales and Anti-Pyramid Scheme Act 1993 [Act 500] the wrong way round: they launch a referral tier, a distributor rank, or a "share the link and earn" commission plan, and only then learn that the activity is licensable — and that the licence they now need has a paid-up capital condition of RM5,000,000 the moment a single foreign shareholder appears on the register. That is five times the WRT threshold and ten times what most China-invested trading subsidiaries capitalise at. Worse, Act 500 does not test your intentions. It tests your plan against a ten-item Schedule, and the statute says a pyramid scheme is a scheme having all or any of those features — so a single structural mistake, such as a mandatory starter pack or a missing buy-back policy, is enough. This guide sets out what counts as direct selling, the three licensable marketing plans, the capital table KPDN actually applies, the products you may not sell at all, the conditions that follow you for the life of the licence, and the penalty map — with section numbers, so every figure can be checked against the gazette.
What Act 500 captures — and why "we only sell online" is not an exit
Section 4(1) of Act 500 is the operative prohibition: no person may carry on any direct sales business unless it is a company incorporated under the Companies Act and holds a valid licence granted under section 6. Two conditions, both mandatory. A foreign branch, a representative office, an LLP, or a Labuan entity cannot hold the licence; only a locally incorporated company can. (The Act and KPDN's guideline still cite the Companies Act 1965, which the Companies Act 2016 replaced — the requirement is unchanged in substance.)
The definitional trap is what "direct sales" means. KPDN's own application procedure defines it as door-to-door sales, mail order sales and sales through electronic transaction, or the sale of goods or services carried out by going from place to place other than a fixed place of business, or by making telephone calls, then negotiating with a prospective buyer to form a purchase contract. Section 19A adds the modern limb directly: no person shall supply by sale, or advertise for the supply of, goods or services through electronic transaction except in accordance with the Act.
This is where most Chinese-invested social-commerce models are caught. If your Malaysian entity recruits individuals as members or distributors, pays them commission or bonus on their own sales and on the sales of people they introduce, and the ordering happens through a WeChat mini-programme, a TikTok storefront or your own app, you are running a multi-level direct sales business conducted through electronic transaction. The channel being digital does not remove it from Act 500; section 19A puts it squarely inside.
Two things genuinely fall outside. A conventional retail or wholesale business selling from a fixed place of business to walk-in customers is not direct selling — that is distributive trade, governed instead by the WRT licence regime. And an ordinary e-commerce store that sells to customers without recruiting them into a compensated distributor structure is regulated as e-commerce, not as a direct sales scheme. The line is the network: the moment participants are recruited and paid for recruiting or for downline sales, you are in Act 500 territory.
The three marketing plans KPDN licenses
KPDN's procedure recognises exactly three marketing plans, and your application is classified into one of them at the outset. The classification drives your capital requirement, your documents, and the level of scrutiny your compensation plan receives.
| Plan | Code | Structure | How participants are paid |
|---|---|---|---|
| Multi-level marketing | MLM | The company appoints members/distributors, who may in turn appoint others (downlines) to form a network, continued to a reasonable number of levels | Commission, bonus or incentive on personal sales and on the sales of the network below them (over-riding bonus) |
| Single-level marketing | SLM | The company appoints sales representatives or agents who are not permitted to appoint or sponsor other representatives | Salary, commission, or a combination, based on the volume of their own sales |
| Mail order | MO | Sale of goods or services by the seller or an authorised person through post or any other delivery method, including electronically | Not a participant network — the regulated subject is the advertisement and the contract |
Note what the mail order definition sweeps in. Because it expressly extends to delivery "including electronically", a direct-to-consumer online seller with no distributor network can still fall under the MO limb, and section 20 then prescribes what the advertisement must contain — including the seller's name and licence number. Companies that assume "no network, no Act 500" often have this backwards.
The capital table — and the RM5 million foreign-ownership line
This is the single most consequential number in the regime, and it is not published as a headline anywhere obvious. KPDN's application procedure sets minimum paid-up capital by marketing plan and by ownership status:
| Category | Not 100% Bumiputera | 100% Bumiputera |
|---|---|---|
| Multi-level marketing (MLM) | RM1,500,000 | RM500,000 |
| Single-level marketing (SLM) | RM500,000 | RM100,000 |
| Mail order (MO) | RM500,000 | RM100,000 |
| Company with foreign ownership — RM5,000,000 (applies regardless of which marketing plan is chosen) | ||
The foreign-ownership row is not a tier — it is an override. It is stated as a single figure for a company that has foreign ownership, without splitting by MLM, SLM or mail order. So a foreign-invested company applying for the simplest plan — single-level, no network at all — still faces RM5,000,000, ten times the RM500,000 that a locally owned applicant for the same plan would face. There is no published minimum foreign shareholding that triggers it. Structure the shareholding before you apply, not after.
Set this against the neighbouring thresholds foreign investors already know: RM1,000,000 paid-up for a foreign-owned wholesale/retail company under the WRT regime, and RM500,000 for foreign-owned companies in most service sectors. Act 500 sits far above both. If your Malaysian plan involves both a physical distribution business and a distributor network, the capital you must commit is driven by the direct selling licence, not by the trading licence — a sequencing point worth resolving during the equity and paid-up capital design stage rather than after incorporation.
What you are not allowed to sell at all
Even with capital and structure right, the product itself can end the application. KPDN's procedure lists categories that are not permitted in a direct selling scheme:
- Trust or insurance products — unless the company holds valid distributor status from PIAM or LIAM, and even then they may not be packaged together with other products.
- Investment products — shares, foreign exchange trading, gold — including any form of deposit-taking.
- Property and any immovable product.
- Virtual products — such as websites, advertising platforms and the like.
The last two lines close off the models most often proposed by incoming operators. A membership that entitles the buyer to advertising placements, traffic, or a "digital storefront package", with commissions paid up a referral tree, is a virtual product — not licensable as direct selling, and, because the money then necessarily flows from recruitment rather than from the sale of goods, it lands directly on feature 1 and feature 2 of the pyramid Schedule. An investment or profit-sharing component turns the same plan into unlicensed deposit-taking, which brings Bank Negara's regime into play as well.
On the positive side, KPDN states the criteria it applies when assessing a product: it should have a distinctive strength that makes it difficult to market through ordinary retail channels, or require detailed explanation by a salesperson; and preference is given to goods with domestic or foreign quality and safety recognition — ISO 9000, MS (SIRIM), GMP, halal certification and similar. A commodity that any shop can sell off a shelf is a weak application on its own merits.
The Schedule: ten features, any one of which is enough
Section 27B makes it an offence to promote or cause to be promoted a pyramid scheme, and section 27A defines a pyramid scheme by reference to the Schedule — a scheme "having all or any of the features specified in the Schedule". That phrasing is the whole risk. You do not need to look like a pyramid overall; you need to avoid every item on the list.
| # | Feature (Schedule to Act 500) | What trips it in practice |
|---|---|---|
| 1 | Promotion or payment of bonus solely or primarily through recruitment rather than sale of goods, services or intangible property | Sign-up fees that fund upline bonuses |
| 2 | Bonus received by participants solely or primarily through recruiting others rather than through sales | Rank advancement driven by headcount, not volume |
| 3 | No written contract or statement of material terms given to participants | Onboarding by app click-through with no contract document |
| 4 | Mandatory purchase, minimum payment or sale requirement as a condition of eligibility or of bonus | The compulsory starter kit or "activation package" |
| 5 | Participants required to buy unreasonable amounts beyond what can be resold or consumed in a reasonable period; pressured into selected packages to qualify | Monthly auto-ship to hold a rank |
| 6 | No refund policy for goods, services or intangible property purchased | "All sales final" terms |
| 7 | No buy-back policy for currently marketable goods on reasonable terms | Refusing to repurchase unsold stock from a leaver |
| 8 | Strict or unreasonable structural requirements for eligibility to be paid bonus | Balanced-leg or forced-matrix qualification rules |
| 9 | Withdrawal by participants not allowed | Lock-in periods or forfeiture on exit |
| 10 | Participants allowed or encouraged to buy more than one position or right to participate | Selling multiple accounts or "extra centres" to one person |
Feature 4 and feature 10 are the two that ordinary, well-intentioned plans fail. A compulsory starter pack is standard commercial practice in China and in several other markets; under the Schedule it is a listed feature of a pyramid scheme. Likewise, letting a strong distributor hold two or three positions to build parallel legs — normal in many compensation designs — is feature 10 on its face. Neither requires bad faith. Both need to be engineered out of the plan before it is submitted, because KPDN reviews the marketing plan as part of the licence application and you may not operate a plan it has not approved.
The application: what KPDN actually asks for
Applications are submitted through the BLESS portal, with a hard copy of the complete application delivered by hand or by post to the Director, Direct Selling Development Division (Bahagian Pembangunan Jualan Langsung), KPDN, Level 1, No. 13, Persiaran Perdana, Presint 2, 62623 Putrajaya. Only complete applications are processed, and all relevant documents must be certified by the company secretary.
| Item | Requirement |
|---|---|
| Form | Form AJL-1, typed and sealed, plus the BLESS submission |
| Corporate | Current SSM company search; constitution certified by statutory declaration of a director; nature of business must include the direct selling business code |
| Company profile (new applicants) | Background of the board and of the shareholders, copies of IC/passport, organisation chart, and a current EPF statement |
| Premises | Copy of the local authority (PBT) business premise licence |
| Products | Full colour product descriptions/brochures; price structure form (Format A); distributor and retail prices; supplier invoice/quotation and country of origin; sole-distributor letter for OEM goods; customs clearance form for imports |
| Product approvals | As applicable: KKM/PKKM label verification (food, vitamins, health supplements); NPRA notification (cosmetics); MAL registration from the Drug Control Authority; KKLIU advertising approval for MAL products; MDA certification for electromagnetic-radiating devices; SIRIM and Suruhanjaya Tenaga (electrical and battery-charged products); Atomic Energy Licensing Board (radioactive); KPM (learning products); PDA letter (petroleum-based) |
| Scheme documents | Buy-back policy; the marketing plan (MLM and SLM only); sample direct sales contract (MLM and SLM); mail order advertisement (MO only) |
| Existing licensees | Copy of current licence and licence conditions; company information form and audited financial statements for the previous year |
| Fee | RM500 per year, by bank draft or money order payable to the Ministry's Secretary General |
| Licence term | Two years for a first application; 1–5 years on subsequent applications, subject to the Controller's decision |
The product-approval row is the schedule risk. NPRA cosmetic notifications, MAL registrations and KKLIU advertising approvals are separate regulatory processes with their own queues, and the AJL file is not complete until they are in hand. Foreign applicants routinely underestimate this: the licence timeline is usually set by the slowest product approval, not by KPDN. If your catalogue spans supplements, cosmetics and a device, plan the product certification track in parallel with incorporation, months ahead of the AJL submission. In practice, advisers report three to six months from a complete submission to decision, with two or three rounds of queries — but that clock only starts once the file is complete.
Life under the licence: what you may not do without approval
An AJL licence is a conduct regime, not a certificate. KPDN's licence conditions bind the licensee continuously, and breach is an offence exposing the licence to action by the Controller of Direct Sales.
A licensee is not permitted to transfer the licence; to operate a marketing plan not approved by the Controller; to sell goods or services other than those approved; or to amend any part of the marketing plan for two years after it is approved.
A licensee must obtain approval before amending the marketing plan; marketing new goods or services; running any campaign, promotion or advertising; changing the price structure of goods or services; changing the business premises address or telephone/fax number; and — critically for investors — changing the company name, the equity structure, or the directors.
The equity-structure condition is the one that catches investment transactions. A share transfer, a new investor round, a holding-company reorganisation or a board change at a licensed direct selling company requires KPDN approval as a licence condition — independently of the SSM filings. Deal timetables built only around Companies Act notification deadlines miss this, and the consequence is a breach of licence conditions rather than a late-filing penalty.
The licensee must also: commence full operations within six months of the licence being issued; act against distributors who use coercive or deceptive selling; train its distributors; display prices on all goods; print the official licence number in the format AJL93XXXX on signboards, all advertising, printed materials, letterhead and the official website so the public can verify it; display the original licence at the office and copies at all stockist premises; submit the annual Company Information and Performance Form (BMS) by 30 April each year; ensure KKM-regulated products, labelling and advertising remain approved; and apply for renewal three months before expiry. Registration with either the Malaysian Direct Distribution Association (MDDA) or the Direct Selling Association of Malaysia (DSAM) is obligatory.
Contract mechanics: RM300, ten working days, and the 90% buy-back
Act 500 hard-codes consumer protections into the contract itself, and non-compliance goes to the validity of the contract rather than merely attracting a fine.
Under section 23(1), a contract for a door-to-door sale of goods or services of the prescribed value — RM300 or above, per KPDN's application checklist — and any mail order contract must be in writing; must carry, immediately above the purchaser's signature line, the statement "THIS CONTRACT IS SUBJECT TO A COOLING-OFF PERIOD OF TEN WORKING DAYS" in upper case in type no smaller than 18 point Times; and must be signed by both vendor and purchaser. Failure to comply renders the contract void (s.23(4)). Failing to hand the purchaser a duplicate copy immediately renders it voidable at the purchaser's option (s.23(5)). A person authorised by the vendor who concludes the contract is deemed to be the vendor for this section — so your distributor's paperwork failure is your contract failure.
During the cooling-off period, section 25 prohibits delivering goods or performing services, and section 25(4) prohibits the vendor or any other person from accepting any money or other consideration from the purchaser before the period expires. A purchaser may waive the right to rescind by serving written notice requiring earlier delivery — but no such notice may be served before 72 hours from the conclusion of the contract. Under section 26 the purchaser rescinds by notice served personally or by registered post, and a posted notice is deemed served three days after posting; on rescission the contract is treated as never having had effect.
Separately, the Direct Sales (Scheme and Conduct) Regulations 2001 require the agreement to give participants ten working days from recruitment to cancel their membership with a full refund of amounts required under the agreement, and require the company to maintain a buy-back policy: repurchasing currently marketable goods sold to a participant within six months, at not less than 90% of the amount paid. The same regulations require that each participant be given a sales kit containing the marketing plan and the company's code of ethics, that incentives be based on goods or services actually sold or distributed rather than on recruitment, and that the scheme not be presented misleadingly by over-emphasising disproportionately high bonuses.
Penalties: the fine lands on the company, the prison term lands on you
| Offence | Body corporate, partnership or society | Individual |
|---|---|---|
| s.4(2) — carrying on direct sales business without a licence | Fine ≤ RM1,000,000; second or subsequent offence ≤ RM2,000,000 | Fine ≤ RM250,000 or imprisonment ≤ 5 years or both; second offence ≤ RM500,000 or ≤ 10 years or both |
| s.27B(2) — promoting a pyramid scheme | Fine not less than RM1,000,000 and not more than RM10,000,000; second offence not less than RM10,000,000 and not more than RM50,000,000 | Fine RM500,000–RM5,000,000 or imprisonment ≤ 5 years or both; second offence RM1,000,000–RM10,000,000 or ≤ 10 years or both |
| s.39 — general penalty where none is expressly provided (covers most licence-condition and conduct breaches) | Fine ≤ RM250,000; second offence ≤ RM500,000 | Fine ≤ RM100,000 or imprisonment ≤ 3 years or both; second offence ≤ RM250,000 or ≤ 5 years or both |
Read sections 4(3), 27B(3) and 38 together. Where a director, manager, secretary or other similar officer is guilty of the offence by virtue of section 38, he is liable to the individual penalty — the one that carries imprisonment. And section 38(1) reverses the burden: the officer is guilty of the offence unless he proves that it was committed without his consent or connivance and that he exercised all such diligence to prevent it as he ought to have exercised, having regard to the nature of his functions and to all the circumstances. The company pays the fine; the resident director and the managing director carry the custodial exposure, and they must affirmatively prove diligence to escape it.
Section 38(2) extends liability the other way as well: a principal is liable to the same punishment for the acts, omissions, neglect or default of an employee or agent acting on his behalf. In a distributor network that is not a technicality — it is the legal mechanism by which a distributor's misleading recruitment pitch becomes the licensee's offence. This is precisely why the licence conditions oblige you to train distributors and to act against those who sell coercively or deceptively: the training file and the enforcement record are the evidence base for the section 38(1) defence, in the same way that a board-minute trail supports a due-diligence defence under other Malaysian statutes.
Offences may be compounded by the Controller or a Deputy Controller under section 40, and a Sessions Court has jurisdiction to try offences under the Act notwithstanding any other written law. KPDN has publicly stated its intention to amend Act 500 to strengthen consumer and legitimate-distributor protection and to bring the law into line with digital-era selling; no amendment date has been announced, and applicants should assume the current framework while planning for tighter, not looser, treatment of online recruitment models.
Deciding your route
Three questions resolve most cases. First: do participants get paid for recruiting, or only for selling? If any part of the compensation depends on introducing people, you are in MLM territory and need the licence. Second: is there foreign shareholding? If yes, budget RM5,000,000 in paid-up capital regardless of plan, and settle the shareholding structure before applying — including whether the group genuinely needs the Malaysian operating company to hold foreign equity at all, or whether a licensed local operating company supplied by a foreign-owned WRT-licensed trading entity achieves the same commercial result at a tenth of the capital. Third: what are you actually selling? If the answer is memberships, advertising placements, digital packages or anything with a return component, the model is not licensable as direct selling in Malaysia and needs to be redesigned rather than repackaged.
For companies whose model is genuine product sales through a distributor network, the sequence that works is: fix the equity and capital structure first; incorporate with the direct selling business code in the SSM nature of business; start the product approvals (NPRA, MAL, KKM label verification, SIRIM) immediately, because they set the critical path; engineer the compensation plan against all ten Schedule features, paying particular attention to mandatory purchases and multiple positions; secure the PBT premise licence; then file through BLESS with the hard copy to Putrajaya. Companies also selling imported stock through conventional channels will usually need the WRT licence alongside, and should check the cross-border e-commerce and sales tax position if goods are fulfilled from outside Malaysia.
ONEKEY BIZ helps foreign-invested groups through the whole Act 500 route: testing whether a proposed compensation plan is licensable at all, structuring the shareholding and paid-up capital against the RM5,000,000 condition, engineering the marketing plan and distributor agreement against the ten Schedule features and the 2001 conduct regulations, coordinating the NPRA/MAL/KKM/SIRIM product approvals that gate the file, preparing the AJL-1 submission through BLESS, and setting up the ongoing approval calendar — campaign approvals, the 30 April BMS filing, and the equity-change consents that transactions so often miss. Talk to us through our contact page, or as part of a wider KPDN licensing engagement. WhatsApp or call +60 12-321 1349.
Frequently asked questions
We sell through a WeChat mini-programme and never knock on doors. Do we still need an AJL licence?
Very likely yes. Section 19A of Act 500 states that no person shall supply by sale, or advertise for the supply of, goods or services through electronic transaction except in accordance with the Act, and KPDN's own definition of direct selling expressly includes sales through electronic transaction. The test is not the channel but the structure: if you recruit individuals as members or distributors and pay them commission on their own sales and on the sales of people they introduce, that is a multi-level direct sales business regardless of whether the orders arrive through an app, a website or a doorstep. Note also that the mail order limb extends to delivery "including electronically", so even a direct-to-consumer online seller with no network can fall inside the regime.
Is the RM5 million paid-up capital really triggered by any foreign shareholding, even 1%?
KPDN's published procedure states the requirement as a single figure for a "company with foreign ownership" (syarikat yang mempunyai pemilikan asing) — RM5,000,000 — without splitting it by marketing plan and without publishing a minimum percentage that triggers it. It sits as an override on top of the plan-based table, so a foreign-invested applicant for even a single-level plan faces RM5,000,000 rather than RM500,000. Because no threshold percentage is published, the prudent approach is to treat any foreign shareholding as triggering it and to settle the shareholding structure before applying — including evaluating whether a locally owned licensed operating company supplied by a foreign-owned WRT-licensed trading entity achieves the same commercial result at a fraction of the capital.
Our compensation plan includes a compulsory starter pack and lets top distributors hold two positions. Is that a problem?
Yes — both are listed features of a pyramid scheme. The Schedule to Act 500 lists ten features, and section 27A defines a pyramid scheme as one having "all or any" of them, so a single feature is enough. Feature 4 covers a mandatory purchase, minimum payment or sale requirement imposed as a condition of eligibility or of bonus — which is what a compulsory starter pack is. Feature 10 covers participants being allowed or encouraged to buy more than one position or right to participate. Neither requires bad faith, and both are standard practice in other markets. They must be engineered out before submission, because KPDN reviews the marketing plan as part of the licence application and a licensee may not operate a plan the Controller has not approved.
If the company is fined, are the directors personally exposed?
Yes, and the exposure is the more serious one. Sections 4(3) and 27B(3) provide that where a director, manager, secretary or other similar officer is guilty of the offence by virtue of section 38, he is liable to the individual penalty — the limb that carries imprisonment (up to five years for unlicensed operation, up to five years for promoting a pyramid scheme). Section 38(1) also reverses the burden of proof: the officer is guilty unless he proves the offence was committed without his consent or connivance and that he exercised all such diligence to prevent it as he ought to have exercised. Section 38(2) additionally makes a principal liable for the acts and defaults of employees and agents acting on his behalf, which is how a distributor's misleading pitch becomes the licensee's offence. Training records and documented enforcement against errant distributors are the evidence base for the diligence defence.
How long does an AJL application take, and what usually delays it?
KPDN processes only complete applications, and advisers commonly report three to six months from a complete submission to decision, with two or three rounds of queries. The delay is rarely KPDN itself — it is the product approvals that must be in the file before it is complete. Depending on the catalogue, these can include KKM/PKKM label verification for food, vitamins and health supplements, NPRA notification for cosmetics, MAL registration from the Drug Control Authority, KKLIU advertising approval for MAL products, MDA certification for devices emitting electromagnetic radiation, and SIRIM plus Suruhanjaya Tenaga sign-off for electrical and battery-charged products. Each has its own queue, so the licence timeline is usually set by the slowest product approval. A first licence is granted for two years; subsequent applications may run 1–5 years, the fee is RM500 per year, and renewal should be filed three months before expiry.
Related services
We handle the process described in this article end-to-end.
- WRT Licence (Wholesale, Retail & Trade)Mandatory KPDN approval for foreign-owned companies in distributive trade.
- Sdn. Bhd. IncorporationRegister a private limited company (Sdn. Bhd.) with SSM end-to-end.
- Annual Return (Section 68)Lodge your company’s yearly annual return with SSM on time.
Sources & references
- KPDN — Tatacara Permohonan Lesen Jualan Langsung (direct selling licence application procedure, incl. paid-up capital table)
- KPDN — Senarai Semak Permohonan Lesen Jualan Langsung (application checklist, 2024)
- KPDN — Borang AJL-1, Peraturan-Peraturan Jualan Langsung 1993
- KPDN — Bahagian Pembangunan Jualan Langsung (Division of Direct Selling Development)
- BLESS — Business Licensing Electronic Support System (application channel)
This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.