How To Obtain A Direct Sales License For China

Obtaining a direct sales license in China involves navigating a comprehensive regulatory framework established to oversee direct selling activities.

It’s important to note that while direct selling is permitted, multi-level marketing (MLM) structures are prohibited in China. The regulations strictly forbid compensation based on the recruitment of new sales people.

Given the complexity of the application process and the stringent regulatory environment, it is advisable to consult with legal experts or professional consultants who specialise in Chinese commercial law to ensure full compliance and to facilitate a successful application.

The key regulations governing this process are the “Regulation on Direct Selling Administration” and the “Regulation on Prohibition of Chuanxiao (Pyramid Selling),” both enacted in 2005. These regulations permit direct selling under stringent conditions to prevent pyramid schemes and ensure market stability.

Eligibility Criteria:

To qualify for a direct sales license, an applicant must meet the following conditions:

Corporate Status: The applicant must be a legally established corporate entity. The applicant for the Direct Sales License has to set-up a FIE (i.e. Foreign Invested Enterprise) in the form of a WFOE, thus it is necessary to get the approval of the MOFCOM for this proposed investment. The investment is going to be approved only if the investor meets all the requirements listed above.

Capital Requirements: The registered capital should meet the minimum threshold specified by the regulatory authorities. The paid-in registered capital must not be less than RMB 80 million. The deposit has been paid in full amount in the designated bank according to the provisions of the Regulation on Direct Sales.

Reputation and Compliance: The applicant should have a sound business reputation and no record of significant legal violations in the five years preceding the application.

Manufacturing Requirements: The products intended for direct sale must be produced within China.

Service Network: The applicant must establish a comprehensive service network to support direct selling activities.

Application Process:

The procedure to obtain a direct sales license includes the following steps:

1. Preparation of Documentation: Compile all necessary documents, including proof of corporate status, financial statements, and evidence of compliance with the eligibility criteria.

2. Submission to Provincial Authorities: Submit the application and supporting documents to the provincial-level department of commerce where the business is registered.

3. Preliminary Review: The provincial department conducts an initial review of the application materials.

4. Forwarding to MOFCOM: Upon passing the preliminary review, the provincial department forwards the application to the Ministry of Commerce (MOFCOM) for further assessment.

5. Final Approval: MOFCOM conducts a comprehensive evaluation and, if all requirements are met, grants the direct sales license.

Operational Compliance:

Licensed direct selling enterprises must adhere to specific operational guidelines:

Sales Representatives: Direct sales persons must be Chinese citizens aged 18 or older.

Training Programs: Companies are required to provide free training programs to their sales representatives, conducted by full-time employees.

Compensation Structure: Remuneration for sales personnel is capped at 30% of the sales price of products they sell directly.

Product Categories: Only certain categories of products are permitted for direct selling, including cosmetics, health food products, sanitary products, health care equipment, small kitchen implements, and household electronic appliances.