If you are managing HR and payroll across a growing team, you may already face issues like scattered employee data, payroll errors, and rising compliance pressure. These problems increase as your workforce scales and processes become harder to control.
This is where having a structured HR and payroll system becomes critical. In regions like Saudi Arabia, businesses must also meet strict workforce and compliance requirements, which makes manual systems even more risky .
In this guide, you will learn how to set up your HR and payroll management system using Yomly. You will understand how to centralize data, automate payroll, and build a compliant system that supports long term growth.
Note: This article is updated for 2026 and is based on the ZATCA Guideline for Regional Headquarters in KSA and MISA’s licensing framework, providing an accurate, HR-focused breakdown of current requirements.
What Is the Regional Headquarters (RHQ) License?
The RHQ license is issued by the Ministry of Investment of Saudi Arabia (MISA). It authorizes a multinational company to legally establish and operate a regional headquarters in the Kingdom, specifically for the purpose of managing, supporting, and providing strategic direction to its branches, subsidiaries, and related companies across the Middle East and North Africa region.
Key structural facts:
- The RHQ is registered under KSA law either as a limited liability company or as a foreign branch
- It must be legally independent from any other entities the company already operates in KSA
- The RHQ cannot generate commercial revenue or sell products on behalf of the group
- All commercial operations must be handled by separately licensed affiliated entities
- The RHQ exists purely to manage, direct, and support
The program became mandatory from January 1, 2024, when Ministry of Finance controls came into force restricting Saudi government agencies from contracting with foreign companies that do not have a licensed RHQ in KSA.
What Are the Benefits of the RHQ License?
Regional headquarters that meet MISA’s qualification criteria and satisfy ZATCA’s Economic Substance Requirements (ESR) are entitled to a package of incentives for a renewable 30 year period, calculated from the date the RHQ license is issued. These incentives are granted under Royal Decree No. (M/62) dated 12/11/2023 AD.
Zero Percent Corporate Income Tax on Eligible Activities
Income the RHQ generates from its licensed mandatory and optional activities is taxed at zero percent for the full 30 year period. This exemption applies only to income from eligible activities. If the RHQ steps outside its licensed scope and engages in commercial activities, that income is taxed under standard KSA income tax rules with no exemption applied.
Zero Percent Withholding Tax on Qualifying Payments to Non-Residents
Payments made by the RHQ to non-resident entities in connection with its licensed activities are subject to withholding tax at zero percent for the same 30 year period. Qualifying payments include:
- Dividends
- Payments to related persons
- Payments to unrelated persons for services necessary for the RHQ’s operations
The exemption does not apply to payments linked to ineligible activities or arrangements that involve tax avoidance.
10 Year Saudization (Nitaqat) Exemption
This is one of the most practically significant benefits from an HR perspective.
- RHQs receive a full 10 year exemption from Saudization (Nitaqat) quotas
- During this period, the RHQ can hire international talent without being subject to Saudi national employment ratios
- The RHQ can issue an unlimited number of work visas to foreign employees
- Once the 10 year window closes, standard Nitaqat rules apply in full
💡 HR note: Start building your Saudi talent pipeline well before the exemption period ends. Waiting until year nine creates a compliance gap that is very difficult to close quickly.
What Are the 3 Mandatory HR Compliance Requirements for Your Saudi Arabia RHQ?
These three requirements come directly from MISA’s licensing conditions and ZATCA’s Regional Headquarters Tax Rules. They are conditions that must be met to hold the license and qualify for the tax incentives.
Requirement 1: Commence Mandatory RHQ Activities Within 6 Months of License Issuance
The RHQ must begin carrying out its mandatory licensed activities within six months of receiving the license from MISA. This is a compliance threshold with direct consequences for your tax incentive status, not a soft guideline.
Mandatory Activities: Two Categories
Strategic Direction Activities
- Developing and monitoring the regional strategy
- Coordinating strategic compatibility across the group
- Supporting acquisitions, mergers, and divestments
- Reviewing financial performance across the territory
- Deciding on the introduction of products or services in the region
Management Function Activities
- Developing business plans and budgets
- Business coordination across the group
- Identifying new market opportunities
- Monitoring the regional market and competitors
- Developing a marketing plan for the territory
- Providing operational and financial reports to the group
Both categories must be performed for the actual benefit of the RHQ’s affiliated entities across the MENA region. ZATCA is explicit that these activities must be genuinely directed and managed from within KSA, with board meetings held physically in the Kingdom and decisions recorded in board minutes kept on Saudi soil.
Optional Activities: Pick at Least 3 Within Year One
Beyond mandatory activities, the RHQ must select and commence at least three optional activities within one year of the license date. The full list includes:
- Managing human resources and employees
- Supporting sales and marketing
- Providing training services
- Financial management and treasury services
- Compliance monitoring and internal controls
- Accounting and legal services
- Audit services
- Research and analysis
- Consulting services
- Logistics and supply chain management
- Technical support and IT operations
- Research and development
- Intellectual property management
- Production management
HR implication: The activity categories your RHQ selects directly shape your workforce structure. Employees must be assigned to specific licensed activities and their qualifications must match the work they perform. ZATCA assesses economic substance partly through whether your people are actually qualified to carry out what the RHQ claims to be doing.
Requirement 2: Employ a Qualified Workforce Including a Minimum of 3 Senior Executives
The RHQ must employ an adequate number of full time employees during each tax year, in proportion to the level of activity it carries out.
The Fixed Minimum: 3 Senior Level Employees
Regardless of size or scale, the RHQ must have at least three employees at the level of Executive Director or Vice President. These three senior employees are expected to make key decisions for the regional headquarters. Although the RHQ may initially have only one director at the point of licensing, the three senior employee threshold must be met as part of the qualification standards.
How ZATCA Counts Employees
Understanding how ZATCA measures headcount is important for HR planning:
- Part time employees count in proportion to time spent on eligible activities relative to a full time employee of the same grade
- Individual contractors who work entirely or almost entirely for the RHQ are treated as employees for ESR purposes
- An employee resident in KSA is treated as physically present throughout their working period, even if they occasionally perform duties outside the country
- An employee who is not resident in KSA cannot be treated as physically present in KSA at any time, regardless of how often they travel there
Qualification Standards ZATCA Looks At
Hiring the right number of people is not enough. The people you hire must be qualified for the roles they fill. ZATCA assesses this through:
- Level of relevant experience for the role and its seniority
- Educational background and professional credentials
- Functional expertise directly related to the licensed activities
- Board members must collectively hold the knowledge and experience necessary to perform their duties
- The majority of employees must have relevant experience to carry out the RHQ’s licensed activities
HR implication: Document the connection between each employee’s qualifications and the licensed activity they are assigned to. ZATCA can examine employment records, contracts, CVs, and role descriptions during an audit. A headcount that looks right on paper but cannot be evidenced will not hold up under scrutiny.
Requirement 3: Maintain Physical Presence, Operational Expenditure, and KSA Based Management Control
This requirement covers three interconnected obligations that ZATCA groups under its Economic Substance Requirements (ESR).
Physical Office Presence
- The RHQ must have a physical office in KSA, either owned or leased
- Office space must be proportional to the activities the RHQ carries out
- A virtual office or shared address arrangement does not satisfy this requirement
Operational Expenditure in KSA
The RHQ must incur operational expenditures in KSA that are commensurate with its activities. ZATCA recognizes the following as relevant operating expenses:
- Salaries and employee benefits
- Rental fees where applicable
- Marketing expenses
- Equipment costs
- Other expenses directly related to the RHQ’s licensed activities
All operating expenses must be supported by documentation, and the level of spending must be proportional to the activities being carried out.
KSA Based Management Control
This is where many RHQ setups run into ESR problems. Management control must be exercised from within KSA in a demonstrable way:
- Board meetings where actual strategic decisions are made must be held physically in KSA
- Virtual or overseas board decisions do not satisfy this requirement
- Board minutes must include all supporting documents and record the actual decisions taken
- All minutes and records must be kept in KSA in original or signed copies
- Where records are kept electronically, they must be accessible for viewing in KSA
- The RHQ must have at least one director who is a statutory resident in KSA
- Residency must be genuine, not a technical tax residency position
The RHQ must also generate revenues from its eligible activities in KSA. In practice this means management fees, cost recoveries, or inter-company service charges received from affiliated entities in exchange for the licensed services the RHQ provides.
HR implication: Your senior leadership must be physically based in KSA and genuinely managing from there. Executives nominally assigned to the RHQ but actually based elsewhere will not satisfy this requirement and will put your ESR compliance and tax incentives at direct risk.
Set Up Your HR and Payroll Management System Using Yomly
Setting up your HR and payroll system with Yomly becomes simple when you use a structured approach. With enterprise HR software and Payroll management software for enterprises with 250+ employees, you can manage employee data, automate payroll, and stay compliant across regions from one platform. Yomly centralizes the entire employee lifecycle and automates salary calculations, reducing manual work and errors.
Key steps to follow:
- Set up company structure with departments, roles, and approval workflows
- Add employee data, contracts, and documents into one system
- Configure HR policies like leave, attendance, and onboarding
- Define payroll structure with salary components, pay cycles, and deductions
- Enable compliance features like WPS and multi country payroll rules
- Automate payroll with real time calculations and payslip generation
- Activate employee self service for leave, payslips, and requests
- Integrate with finance and ERP systems for smooth data flow
With this setup, Yomly helps enterprises manage large teams, ensure payroll accuracy, and scale operations without complexity.
👉 Explore Yomly Case Studies: Streamlining HR & Payroll for Top Brands
Final Words
Setting up HR and payroll for a growing workforce needs more than basic tools. You need a system that keeps your data organized, payroll accurate, and compliance in check as your team scales. A structured setup helps you avoid errors, reduce manual work, and improve how your HR team operates every day.
If you are managing a large or distributed workforce, using an HR platform like Yomly can make this process easier. It brings HR, payroll, and compliance into one place, so your team can focus more on people and less on repetitive tasks.
