A major VAT change is coming for the UAE scrap metal sector. Starting 14 January 2026, the UAE will implement a Reverse Charge Mechanism (RCM) for scrap metal transactions, shifting VAT responsibility from sellers to buyers.
This change was introduced under Cabinet Decision No. 153 of 2025, announced by the Ministry of Finance, and is aimed at reducing tax fraud and improving efficiency within the scrap trade industry.
What Is the Reverse Charge Mechanism?
Under the current VAT system, scrap metal sellers charge VAT to buyers and remit it to the Federal Tax Authority (FTA).
From 14 January 2026, this will change:
- Sellers will no longer charge VAT on scrap metal supplies.
- Buyers will account for and report VAT themselves on their VAT returns.
The rule applies whether the scrap metal is purchased for resale or processing into new materials for manufacturing.
Who Will Be Affected?
The reverse charge mechanism applies only to transactions between VAT-registered businesses involved in scrap metal trading.
You will be affected if:
- You are VAT-registered with the FTA, and
- You buy or sell metal scrap for resale or processing.
Both the buyer and seller must be VAT-registered for the reverse charge to apply.
Why Is the UAE Introducing This Change?
The Ministry of Finance stated that the move is intended to:
- Combat VAT fraud in the scrap metal sector
- Improve tax compliance and transparency
- Speed up and simplify the VAT refund process
- Promote tax fairness and voluntary compliance
The UAE has already successfully implemented similar reverse charge rules in sectors such as electronics, gold, and precious metals, where VAT fraud risks are higher.
Required Documentation and Compliance Steps
To apply the reverse charge mechanism correctly, both parties must follow specific procedures before the supply takes place.
Buyer Responsibilities
Buyers must provide the seller with a written declaration confirming:
- The scrap metal is purchased for resale or processing
- The buyer is VAT-registered with the FTA
Seller Responsibilities (MUST):
- Obtain and retain the buyer’s declaration
- Verify the buyer’s VAT registration
- Clearly state on the tax invoice that VAT is subject to the reverse charge mechanism
Penalties for Non-Compliance
Although the announcement does not specify new penalties, the reverse charge mechanism falls under:
- Federal Decree-Law No. 8 of 2017 (VAT Law)
- Cabinet Resolution No. 52 of 2017
Non-compliance may lead to administrative penalties imposed by the FTA.
What Businesses Should Do Now
Scrap metal businesses should:
- Review and update VAT accounting systems
- Train staff on reverse charge procedures
- Update invoicing formats
- Ensure declarations and VAT checks are in place
Preparing early will help avoid penalties and ensure smooth compliance before 14 January 2026.
