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How to Start an E-Commerce Business in Singapore
E-commerce can be a lucrative industry for businesses with the right products. This industry is expected to grow as behaviors shift toward online shopping.
With the dramatic shift to online commerce in the wake of the pandemic, it is a mistake to refuse to incorporate the digital world into your business. In Singapore, the e-commerce market is projected to expand at a compound annual growth rate of 16.2% to US$10.7 billion by 2025, propelled by changing consumer behaviours, according to data and analytics firm GlobalData.
After shoppers took a prudent approach at the height of the COVID-19 crisis in 2020, e-commerce sales are now forecast to rebound and increase by 18.3% to US$7.0 billion in 2022. Mobility restrictions also appear to have pushed shoppers to buy online. The Visa Consumer Payment Attitudes Study released in 2021 found that 74% of consumers made online purchases more frequently, while three in 10 Singaporean consumers made their online purchase for the first time during the pandemic, reflecting a change to shoppers’ preference.
It is not hard to understand why Singapore is at the forefront of e-commerce adoption in Asia. More than 90% of the city-state’s population are internet users or over 5 million people. A Singaporean spends eight hours and seven minutes browsing the internet per day. Additionally, Singapore has one of the most stable internet infrastructures in the region and one of the fastest internet speeds globally.
With an ambitious target of making the Lion City the hub for e-commerce in Asia, the Singaporean government launched initiatives to encourage businesses to adapt to the digital world. For example, it found attractive subsidies to offset the financial cost of online adoption among enterprises. Singapore also teamed up with Google to help those seeking a career in the digital industry.
If you do not want to miss out on a wealth of opportunities, now is the time to either start or scale up your businesses’ e-commerce efforts. In this article, we will look at the benefits of starting an e-commerce business in Singapore, how to do it, and best practices.
Do I Need to Register My E-commerce Business in Singapore?
Entrepreneurs in Singapore carrying out profit-generating activities in any form need to register their business, including e-commerce stores. Even if you are a small business owner, you still must comply with government requirements and do the paperwork to legitimise your business.
Thankfully, Singapore’s business-friendly nature has made it easy to do this. Being a registered business gives you access to many government- and private-led opportunities. If your online business is properly recognised, it is easier to secure capital, look for investors, and request assistance from the government in times of an economic crisis.
Is E-Commerce Profitable in Singapore?
With the reliance on the internet for our day-to-day activities, online businesses are enjoying the spotlight. About 3.3 million people in Singapore are active online shoppers, and e-commerce sales are projected to register double-digit growth in 2022.
The top three e-commerce sites in the city-state are Shopee, Lazada, and Amazon. At the same time, the most in-demand product categories are consumer electronics, fashion and beauty, toys and hobbies, and personal care. If you know your market, have a compelling set of products to sell, and are investing in your online marketing efforts at the right time, having an e-commerce business in Singapore can be a profitable venture.
Benefits of Starting an E-Commerce Business in Singapore
Putting up a physical shop means spending on rent, store design and construction, and repair. You do not have to include these major expenses in your budget with an online store.
The cost of creating your e-commerce shop is relatively cheaper than that of a physical store. You do not even have to spend on website development and maintenance if you decide to sell via e-commerce platforms like Shopee or Lazada since joining these sites is free.
Singapore’s position as the financial hub in Southeast Asia can be attributed to its business-friendly policies. Many corporations choose Singapore as their headquarters because of the ease of doing business here. But large companies are not the only ones that can benefit from the Lion City’s entrepreneur-friendly environment.
With dozens of commercial and merchant banks, fund managers, and capital markets, Singapore provides easy access to much-needed capital at low-interest rates. The government also leads various initiatives to encourage businesses to scale up their online presence.
Another benefit of putting up an e-commerce business in Singapore is having an efficient tax system. Your business can avail of tax incentives upon meeting requirements through the city-state’s free trade agreements with other countries. Additionally, setting up a business in Singapore is straightforward. You can have your company registered within days compared with elsewhere, where business registration may drag for so long.
People are Dependent on the Internet
Most Singaporeans rely on the internet for almost anything–paying bills, shopping, booking a service, connecting with friends, etc. This gives you a broader reach to market your products minus the constraints of operating a physical store, which heavily relies on foot traffic. It is also more efficient to promote your products using e-commerce, thanks to the availability of sophisticated ad tools that can analyse your target audience.
You can complement your e-commerce store with social media promotions to efficiently reach your tech-savvy market. You can target specific demographics such as age bracket, location, or interests and behaviours and customise how you want your ads to be shown depending on your objectives.
How Do I Start an E-commerce Business in Singapore?
Starting an e-commerce business in Singapore should not be a complex process if you come in prepared. That means poring over the fine print and tiniest details to ensure that you are compliant with rules. This section will break down the different steps to activating your e-commerce business in Singapore.
Step 1: Research and plan
Any business starts with an idea. Conduct thorough research to know your target customers, current trends and demands, and competition. You can do this by observing how your potential competitors are doing their business, interviewing relevant sources, and reviewing documents (i.e. financial statements) that can give you an idea of the demand within your target niche.
At the end of the research, you should be able to identify the following:
- Products or services that you will sell
- Your target customers
- Potential competitors and their advantages and disadvantages
- Your business’ advantage
- A contingency plan in case something goes wrong
Once you have a solid business idea and are done with the market research, it is time to craft a business plan. This is a written document detailing your business’ roadmap, including your goals and strategies.
Step 2: Securing Funding
The next step is all about money. No matter how great your products are or how big of a demand there is for your business, none of these would matter if your e-commerce company does not have the capital to start your business.
If you have all the monetary resources to start your business and sustain it for the next six months, consider yourself lucky. But even if you don’t, there are many ways by which you can get financial assistance to get your business going.
The most common way is by taking out a loan from financial institutions like commercial banks. You can go to different lending institutions to see which offers the lowest interest rate and friendliest terms. If you are a startup, it is recommended to submit applications to different banks and see which of them would consider you for a loan.
Another option is by looking for investors. Many of today’s most successful startups were born out of brilliant business ideas with the backing of investors. The repayment terms will depend on your negotiations, but in most cases, your investors would not ask you to repay them the amount lent to you but would instead ask for a share in your e-commerce business.
Lastly, you can seek government funding to help you kickstart your online business. Some of the popular government-led grants in Singapore that you can look into are Startup SG Tech, Enterprise Development Grant, Startup SG Equity Programme, and Market Readiness Assistance Grant.
Step 3: Choose Your Business Structure and Model
There are three common business structures in Singapore. The first one is a sole proprietorship, under which the single owner has complete control over the entire business. This type is suitable for individuals with low-risk tolerance and who have limited capital. Only Singapore residents can apply for sole proprietorship; foreigners or corporations need to appoint a local manager under this.
The second type is limited liability partnership (LLP). This adopts a partnership structure where each owner’s liabilities are limited to how much they invested in the business. This structure also requires a lower cost set-up while offering liability protection. However, the owners are required to pay tax at the individual level. They also need to pay personal income tax, which is higher than corporate tax. Like sole proprietorship, LLP is for Singapore residents only.
Lastly, a private limited company (Pte Ltd) is private ownership with limited liability. Only up to 50 shareholders are allowed in this structure. This is the most ideal for entrepreneurs looking to open an e-commerce business in Singapore because of tax exemptions and other attractive benefits. Under Singapore’s new startup exemption rules, the income tax rate for private limited companies is 4.25% for the first S$100,000, 8.5% for the next S$100,00, and 17% for income above S$200,000 thereafter.
The next thing to consider is your business model. In e-commerce, your business model may be in the form of dropshipping, white-label, or manufacturing.
Dropshipping does not require business owners to keep stock of the products. Owners only serve as the storefront or the bridge between the main product suppliers and the buyers. White label refers to sourcing products from a manufacturer and then rebranding them under your business.
The biggest, albeit most complex, business model is manufacturing. This requires business owners to oversee the entire process from production to sales. It goes beyond e-commerce, requires physical factories, and entails high capital.
Step 4: Incorporate Your Business
This step involves the paperwork of setting up an e-commerce business in Singapore. The government requires the following when incorporating a business:
- Company name: Have a shortlist in case your first choice gets disapproved for reasons such as duplication.
- At least one director: He or she must be at least 18 years old, a Singapore local or permanent resident with no disqualification record on holding a directorship.
- Company secretary: This person is responsible for the communication between the company and the government. He or she will also be in charge of the documentation to ensure that the business remains compliant with government policies.
- Registered Singapore address: Even if you do not have a physical store, you should declare an address within Singapore to become a legal entity. You can avail of virtual offices or register your home address.
- Company constitution: This is where the business structure is explained, including how the shares are distributed among the owners. You also have to state your paid-up capital in this document.
- IDs: You have to submit proof of identity of all the directors and shareholders of the business.
After gathering all these documents, the next step in company registration is submitting your application to the Accounting and Corporate Regulatory Authority (ACRA). The application fee is S$315, consisting of S$15 for business name reservations and S$300 for company registration. ACRA’s processing time for these types of applications takes only a few hours.
Step 5: Set Up Your Infrastructure and Accounting System
While preparing your documents for company registration, you may also start planning and setting up your business’ infrastructure. If your plan is to sell products only on e-commerce websites like Amazon or Lazada, the infrastructure may not matter that much since the said platforms have built-in tools to facilitate end-to-end transactions.
If you want to build your own brand, hiring someone to develop a website for you is recommended. You have to consider your domain name, website host, and design. When setting up your store, you can also consider subscription-based e-commerce software like Shopify.
Another thing to flesh out in this step is your advertising and marketing strategy. There are different ways by which you can market and advertise your products and services, such as by placing an ad on social media sites and promoting your page online. You can also create a business page on Facebook to make your brand more visible to your target market. You can incorporate search engine optimisation (SEO) practices for better visibility in search engines like Google for websites.
For finance-related matters, you can outsource your bookkeeping and accounting needs to an agency, do it in-house, or have a combination of both. This is very crucial because aside from keeping in check of your cash flow, these roles help ensure that your business remains compliant with the government’s tax and accounting policies to prevent any fines.
Online business startups may consider cloud payments software like Spenmo to keep track of their transactions as they happen. You can automate all your business payments and instantly reconcile them to your own accounting software. You can also request physical and virtual cards for paying your suppliers and freelancers.
Spenmo offers a zero percent mark-up on all foreign-exchange bill payments, a cost-efficient solution if you have partners overseas.