The development of the digital economy and new models of product and service distribution has further blurred the line between permissible forms of direct selling and prohibited pyramid schemes. A particular challenge lies in distinguishing legitimate multi-level marketing (MLM) models from systems whose economic sustainability is primarily based on the continuous recruitment of new participants. Although both models rely on a multi-level organisation of participants, their legal and economic foundations are fundamentally different. This phenomenon has become even more complex due to the fact that, alongside traditional physical trade in goods, these models increasingly appear in the digital sphere through the sale of intangible products.

A significant milestone in the legal distinction between MLM models and prohibited pyramid schemes was the decision of the United States Federal Trade Commission (FTC) in In re Amway Corp., decided in 1979. In that proceeding, criteria relevant for distinguishing legitimate multi-level selling models from unlawful pyramid structures were systematically examined.

Although the Amway decision has no direct application in the Republic of Serbia, the criteria considered in that proceeding continue to represent one of the relevant reference points for distinguishing legitimate MLM models from pyramid schemes in numerous legal systems.

Multi-Level Marketing as a Business Model, Not a Legal Form

From the perspective of corporate law, it is important to clarify the nature of the concept of multi-level marketing. MLM, in itself, does not constitute a separate legal form or a distinct category of business entity; rather, it represents a business model that may be implemented by business entities operating under different legal forms.

The manner in which distributors are engaged and their tax status depend on the specific business model and the legal nature of their relationship with the company.

Accordingly, any entity seeking to implement this business model on the Serbian market must be registered in accordance with the Companies Act of the Republic of Serbia and other regulations governing the performance of business activities, have an appropriate registered activity, comply with its tax obligations and operate within the applicable regulatory framework.

Regulatory Framework

Where the sale of goods within a particular MLM model is carried out through direct contact with consumers outside business premises, such relationships may fall within the scope of the provisions governing direct selling under Article 15 of the Trade Law of the Republic of Serbia. This form of trade involves selling outside business premises, with the simultaneous physical presence of the trader and the consumer, together with the consumer’s prior consent to receive an offer. It may be conducted at promotional sales events or at the consumer’s residence or workplace.

In practice, relationships between a company and its distributors may be regulated through various types of contractual arrangements, depending on the actual substance of their relationship, including a commercial agency agreement where the statutory requirements for such an arrangement are fulfilled. However, the contractual structure itself is not decisive for assessing the legality of an MLM model; rather, the relevant consideration is its actual economic function and the manner in which revenue is generated.

Where a system operates in such a way that income is generated exclusively or predominantly from the actual sale of products to end consumers, this represents a lawful form of direct selling.

When Does Multi-Level Marketing Become a Prohibited Pyramid Scheme?

The absence of specific regulation governing MLM leaves room for abuse and the emergence of unlawful pyramid schemes disguised as MLM business models. A particular challenge arises from the fact that modern pyramid structures are rarely presented as traditional profit-making schemes. In practice, contemporary digital models are often presented as “educational platforms”, “digital memberships”, “affiliate programmes” or “investment communities”, meaning that the formal label attached to a business model is far less significant than its actual economic structure.

Article 43 of the Trade Law expressly prohibits organising, conducting, advertising and encouraging pyramid selling schemes. Paragraph 2 of this Article provides that pyramid selling constitutes a form of trade whereby customers are enabled to purchase goods or services exclusively from persons included in a chain or network of resale of goods or services (members of the network), where the seller conditions the purchase upon an obligation to pay membership fees or other compensation to the organiser of the network or another network member; an obligation to purchase the same or other goods in quantities or values which the seller knows or must know are unreasonably high; or an obligation to find other persons who will engage in the resale of goods offered by the seller, where the right to receive remuneration for finding such persons is conditional upon prior payment or the provision of a special fee to the seller. In addition to prohibiting pyramid selling schemes, the Trade Law also establishes misdemeanour liability for violations of this prohibition. Pursuant to Article 68 of the Trade Law, a legal entity that organises, conducts, advertises or encourages pyramid selling may be subject to a fine ranging from RSD 500,000 to RSD 2,000,000.

In addition to the prohibition of pyramid selling under the Trade Law, certain models displaying characteristics of pyramid schemes may also constitute misleading commercial practices under the Consumer Protection Act of the Republic of Serbia. These include the creation, operation or advertising by a trader of a product sales system in which a consumer pays a fee for the opportunity to obtain income which does not depend on the success of selling a particular product, but rather on the participation of other consumers in that sales system (pyramid scheme). Pursuant to Article 187 of the Consumer Protection Act, a legal entity may be subject to a fine ranging from RSD 300,000 to RSD 2,000,000 if it misleads consumers in the manner prescribed by Articles 18-20 of the Consumer Protection Act. Given that the Act expressly recognises pyramid schemes as a form of misleading commercial practice, such models may also give rise to misdemeanour liability under consumer protection legislation.

The above provisions demonstrate that the legislature does not prohibit multi-level distribution as such, but rather business models in which recruitment of new participants represents the dominant source of income.

The Economic Source of Income Criterion

From both a legal and economic perspective, the essential distinction lies in the source of profit generation. In a legitimate MLM model, the product or service has independent market value and genuine demand, regardless of the recruitment of new members. Even if the recruitment of new members were to cease, such a business model could continue to operate based on the continued sale of products or services to end consumers.

By contrast, in pyramid structures, the product or service often plays a secondary role and primarily serves as a formal basis for charging entry fees or maintaining the recruitment system. Initial participation fees are often high and may be disguised as “mandatory starter packages”, “vouchers” or “educational levels”. Where the economic survival of a system is not based on genuine market demand, but rather on purchases made by participants within the system and the recruitment of new participants, such a model exhibits characteristics of a pyramid structure and carries a significant risk of economic unsustainability. For this reason, when assessing the legal classification of a particular model, the decisive issue is not whether a company formally sells a particular product or service, but whether the business model could operate sustainably without a constant influx of new members.

Civil Law Consequences

From the perspective of civil law, contracts for participation in systems displaying characteristics of pyramid selling may be deemed void under the general principles of contract law if they are contrary to mandatory statutory provisions, public policy or good morals. However, the assessment of invalidity always depends on the specific circumstances of the case and the content of the contractual relationship, as assessed by the court.

You can read the full article on Lexology: Multi-Level Marketing (MLM) and Pyramid Schemes in the Republic of Serbia: Where Is the Line Between a Lawful Business Model and Prohibited Practice? – Lexology

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Foreign investors entering the Serbian market are often reassured by initial familiarity of the transaction environment.

The corporate registry (Serbian Business Registers Agency) is fully transparent and digitalized, the legal framework mirrors continental European corporate structures, and transaction documents often reflect concepts and drafting techniques commonly used in European M&A practice.

However, that apparent familiarity should not be mistaken for complete alignment with the EU acquis, nor does it guarantee the absence of deep-seated local complexities.

While the European Commission’s 2025 Serbia Report acknowledges a “good level of preparation” in the field of company law, full harmonisation with the EU acquis remains a work in progress. Although substantial legislative amendments governing cross-border conversions, mergers, and divisions, as well as the legal framework for the European Company (SE) were adopted in March 2025, their implementation has been postponed until 1 January 2027, while additional regulatory alignment measures continue to be introduced. Consequently, M&A risk in Serbia operates on two distinct levels: the formal-legislative (navigating delayed enforcement and evolving statutory alignment) and the practical-commercial (risks that remain completely invisible within a standard virtual data room (VDR)).

Ownership arrangements, related-party dealings, informal decision-making channels, undocumented commercial dependencies, tax exposures, employee practices, legacy liabilities and relationships with key customers or suppliers are not always fully visible from corporate records or from standard due diligence materials.

For that reason, foreign investors should approach Serbian M&A transactions not only as a document-review exercise, but as a broader legal, regulatory and factual investigation into how the target business is actually owned, controlled, financed and operated.

What the VDR Won’t Tell You

Many prominent Serbian companies, particularly privately-owned and founder-driven businesses, developed during periods of rapid regulatory transition. To survive, they relied on tactical improvisation rather than rigid corporate governance. As a result, the way a target business actually operates is often not fully reflected in the documents uploaded to the VDR. Foreign buyers routinely underestimate just how much institutional knowledge, commercial leverage, and operational continuity depend on specific individuals rather than institutionalised systems.

This becomes visible surprisingly late in the process. A buyer may complete a thorough legal due diligence process and still fail to identify the main nuances: Who genuinely controls key customer relationships? Which operational decisions are made via informal handshakes? How dependent is the entire business model on a founder whose actual influence far exceeds their official title in the corporate registry?

In Serbia, due diligence should be approached as an operational investigation rather than just a mere paper-verification exercise.

You can read the article on Lexology here: Beyond the Virtual Data Room: Real M&A Risks for Foreign Investors in Serbia

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Over the past several years, Serbia has gradually transformed its tax compliance framework through the implementation of mandatory electronic invoicing and increased digital supervision by the tax authorities. What initially appeared to be a technical modernization initiative has, in practice, evolved into a much broader compliance ecosystem affecting accounting, finance, legal, and operational risk management within companies.

The latest amendments applicable from April 2026 continue this trend by introducing additional obligations concerning internal invoicing through the Serbian Electronic Invoicing System (“SEF”). Although internal invoices have long existed under Serbian VAT regulations, the new rules significantly change their practical role and compliance importance. Transactions and VAT adjustments that previously remained largely within internal accounting records are now becoming part of a centralized electronic reporting structure directly accessible to the Serbian tax authorities.

It is noted that the obligation applies to business entities in B2B transactions (between businesses) and B2G transactions (between businesses and public sector entities), whereas in B2C transactions, (business to consumer) the obligation of universal mandatory electronic invoicing has not yet been introduced. In essence, internal VAT adjustments are no longer intended to remain exclusively within internal accounting records. Instead, they are becoming part of a centralized electronic reporting structure directly visible to the authorities. For many companies, this represents a shift from traditional bookkeeping practice toward a far more transparent and controlled compliance environment.

From Internal Accounting Documentation to Regulatory Reporting Instrument

Historically, internal invoices in Serbia were often treated as supporting accounting documentation prepared primarily for VAT calculation purposes. In practice, many businesses handled such documents manually, often without standardized workflows or dedicated internal control procedures.

By requiring certain internal invoices and VAT adjustment mechanisms to be processed through SEF, the legislator has effectively transformed internal invoicing into a formal regulatory instrument. This is particularly relevant in situations involving reverse-charge VAT obligations, corrections of the taxable base, VAT adjustments following invoice cancellations or amendments, advance payments and subsequent reconciliations, as well as corrective documentation linked to previously reported VAT transactions. The practical consequence is straightforward: transactions that previously remained largely within the internal accounting sphere are now entering a system of centralized electronic supervision maintained by the tax authorities.

Increased Transparency and Expanded Audit Visibility

At first glance, the amendments may appear administrative or technical in nature. However, their broader significance lies in the enhanced transactional visibility they provide to the Serbian tax authorities.

Through SEF, the authorities already possess extensive insight into outgoing and incoming invoices. The inclusion of internal invoices further expands this visibility by enabling regulators to monitor correction histories, VAT adjustments, timing of corrections, relationship between original and corrective invoices, internal tax calculations and reconciliation consistency between accounting and VAT recording significantly greater detail, thereby creating a fundamentally different audit environment.

As a result, accounting inconsistencies are more easily identifiable during audits. For example, where a company issues a corrective invoice but delays the corresponding VAT adjustment through SEF, discrepancies between VAT returns, accounting ledgers, and electronic invoice records may be automatically detected through cross-checking mechanisms.

As Serbian tax supervision becomes increasingly data-driven, compliance exposure is no longer limited to incorrect VAT outcomes alone. The integrity, timing, and consistency of the underlying process have become equally important.

You can read the full article here: Mandatory Internal Invoicing Through SEF – A New Compliance Reality for Serbian Companies in 2026

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On 23 April 2026, the National Assembly of the Republic of Serbia adopted the Law on Amendments and Supplements to the Law on Trade (the “Adopted Law”) previously submitted by the Government on 13 March 2026.

The Adopted Law introduces several significant changes to commercial practice and the Serbian market, with expected positive effects for both producers and consumers. Overall, the Adopted Law aims to bring Serbian trade regulation into closer alignment with EU standards, particularly in the areas of misleading price reductions, unfair market practices and the further development of digitalization in the area of trade regulation.

A key area of reform concerns the concept of the “previous price” used as a reference for price reductions. In practice, the Serbian market has seen irregularities in price display and discount calculation, resulting in inconsistent application of the existing rules. In particular, traders have occasionally increased prices shortly before announcing a discount, thereby creating the impression of a greater price reduction between the so-called “old” and “new” prices.

In order to further align Serbian law with EU legislation – most notably Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers, and Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU as regards the better enforcement and modernization of Union consumer protection rules – the Adopted Law introduces a clearer and more precise regulatory framework.

First, when advertising a price reduction, the reference price must be the lowest price at which the trader offered the goods during the 30-day period preceding the reduction. This rule does not apply in the same way to perishable goods and goods with a short shelf life. In addition, where a product has been part of the trader’s assortment for less than 30 days, the previous price would be the lowest price applied during a period of at least 15 days prior to the reduction taking effect. This solution is intended to ensure greater transparency and a more uniform approach in the market.

A further important area addressed by the Adopted Law concerns the absence of a unified register of purchasers, as well as the lack of detailed rules governing registration and record-keeping in this area. According to the Adopted Law, the introduction of such a system should facilitate the monitoring of active purchasers, improve inspection planning and provide better visibility into the grey market, where payments are often made exclusively in cash. In that sense, the Adopted Law also appears designed to strengthen compliance with broader regulatory objectives relating to anti-money laundering.

To that end, the Adopted Law provides that the Ministry of Trade would maintain the Register of Purchasers as a unified electronic database, referred to as the “e-purchase place”. A trader operating at a purchasing point would be required to prominently display key information, including its business name, registration number, tax identification number, the type of products being purchased, working hours and the relevant period of the year during which purchasing is carried out. In addition, the trader would be obliged to display a notice clearly informing agricultural producers of the general purchasing terms prior to the sale of goods. The Adopted Law further provides that the Minister of Trade, together with the minister responsible for agriculture, would prescribe in more detail the minimum technical requirements applicable to trade at purchasing points.

You can read the article on Lexology here: Serbia Adopts Amendments to the Law on Trade: Key Changes and Market Impact – Lexology

The full article is also available here: ROKAS_Lexology_Serbia Adopts Amendments to the Law on Trade Key Changes and Market Impact

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 e-Sick Leave system effective 1 January 2026

As of the date of commencement of the Law on the Exchange of Data, Documents and Notifications in Cases of Temporary Incapacity for Work, implemented through the software solution “e-Sick Leave – Employer” (Official Gazette of the Republic of Serbia, No. 109/2025, “Law”), i.e. as of 1 January 2026, a new, fully digitalized procedure for the exchange of data relating to employees’ temporary incapacity for work is introduced.

With the entry into force of this Law, Article 103 and Article 179 paragraph 3 item 2) of the Labour Law cease to apply, insofar as they relate to the obligation of the insured person to notify the employer of the medical commission’s assessment of temporary incapacity for work. As a result, the previous obligation of employees to submit notifications, certificates, or other documents related to the medical commission’s decision on sick leave is abolished.

In practice, this means that all data concerning temporary incapacity for work—including the commencement of sick leave, its duration, extensions, and termination—will be exchanged exclusively in electronic form, through the centralized information system e-Sick Leave. Employers will receive all relevant information directly via the software solution, without additional involvement of employees and without the exchange of paper documentation.

The new legal framework applies to employees, as well as to persons who are engaged in work, on duty, or performing services for an employer, in accordance with Article 2 paragraph 1 of the Law. In this way, a broad category of work-engaged persons is covered, ensuring uniform application of the rules in practice.

Practical implications for employers

The introduction of the e-Sick Leave system significantly alters the practical allocation of responsibilities between employees and employers. While employees are required only to initiate the medical examination process, all subsequent communication and data exchange are conducted electronically between healthcare institutions, competent authorities, and employers.

From an employer’s perspective, the centralized system enhances legal certainty, as data received through the platform constitutes official information and reduces the risk of delays, inconsistencies, or incomplete documentation. At the same time, employers are expected to actively monitor the system and promptly act upon changes recorded therein, particularly with respect to the start, extension, or termination of sick leave.

Although the new framework reduces administrative burdens, its effective implementation will largely depend on employers’ internal organization, including the designation of responsible HR or payroll personnel and timely familiarization with the technical operation of the e-Sick Leave – Employer system.

Employers are therefore advised to review and align their internal procedures, employment policies, and HR practices with the new digital regime ahead of 1 January 2026, in order to ensure compliance and avoid operational disruptions.

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