FTA Public Clarification VATP047 explains how Cabinet Decision No. (153) of 2025 applies in practice 7 October 2026

Legislation	Cabinet Decision No. (153) of 2025 on the application of the Reverse Charge Mechanism to the trade of Scrap Metal between registrants (issued 4 November 2025), under Federal Decree-Law No. (8) of 2017 on VAT (the “Decree-Law”)
In force	14 January 2026
FTA guidance	Public Clarification VATP047, issued 2 October 2026
Who is affected	VAT-registered suppliers and recipients of ferrous and non-ferrous Metal Scrap, including scrap dealers, traders, recyclers and manufacturers
What changes	The supplier no longer charges VAT; the recipient self-accounts for it in its VAT return (Box 3 and Box 10)
Critical condition	The recipient’s written declarations must be in the supplier’s hands before each date of supply. If the declarations are not provided, the RCM does not apply, the supplier must account for VAT at the standard rate, and the recipient is not entitled to recover the related input tax.

أهم النقاط 1. For qualifying supplies of Metal Scrap between VAT registrants, liability to account for VAT moves from the supplier to the recipient. 2. The mechanism is mandatory, not elective, and requires declarations before each supply, supplier verification and an explicit invoice statement. 3. Non-compliance can create exposure for both parties: suppliers may incorrectly charge VAT on qualifying supplies, while recipients may lose input tax recovery where the required conditions are not met. 4. The Decision has applied since 14 January 2026. Businesses should review returns already filed, not only prepare for the next one.

1. Overview

The UAE Cabinet issued Cabinet Decision No. (153) of 2025 (the “Decision”), introducing a domestic Reverse Charge Mechanism (“RCM”) for supplies of Metal Scrap between VAT registrants in the UAE. The Decision entered into force on 14 January 2026, sixty days after its publication in the Official Gazette.

On 2 October 2026, the Federal Tax Authority (“FTA”) issued Public Clarification VATP047, setting out the scope of the mechanism, the declarations and verification steps, the invoicing treatment and the reporting of affected transactions in the VAT return.

Where the conditions are met, the supplier does not charge VAT. The VAT-registered recipient accounts for the VAT as output tax and, subject to the normal recovery rules, recovers it as input tax in the same VAT return.

2. Why the UAE introduced the RCM

The Ministry of Finance has presented the Decision as part of efforts to strengthen the efficiency of the tax system and to counter fraudulent practices in the metal scrap sector, supporting transparency, voluntary compliance and the administration of refunds. The UAE already applies reverse charge rules to other higher-risk sectors, including electronic devices and precious metals, and the scrap metal measure follows the same approach.

3. Scope: what is “Metal Scrap”?

Under the Decision, “Metal Scrap” means ferrous or non-ferrous metal waste that has commercial value and can be used after processing. “Processing” means the process through which Metal Scrap is transformed into materials usable in the manufacture of new products, whether by repair, recycling or any other method.

VATP047 adds practical guidance on what falls inside and outside the mechanism:

Generally within scope	Generally outside scope
Ferrous or non-ferrous metal waste with commercial value that will be resold or processedItems primarily composed of qualifying metal, such as certain end-of-life lead-acid batteries	Paper, plastic, glass and rubber scrap (ordinary VAT rules apply)Scrap acquired for the recipient’s own use, for example internal maintenanceDirect and indirect exports (ordinary export zero-rating rules apply)Supplies to or by persons not registered for VAT

4. Conditions for the RCM to apply

The RCM applies only where الجميع of the following conditions are satisfied:

#	Condition
1	The supply consists of Metal Scrap.
2	Both the supplier and the recipient are registered with the FTA for VAT purposes.
3	The recipient intends to resell the Metal Scrap or to use it in Processing.
4	The recipient has provided the supplier with the two required written declarations before the date of supply, and the supplier has completed its own pre-supply steps (Section 5).

If any condition is not met, the supply follows the normal VAT rules and the supplier charges VAT at the standard rate. The RCM does not apply to qualifying Direct Exports or Indirect Exports. Where the zero-rating conditions are met, the normal zero-rating rules apply.

5. Declarations, verification and invoicing

The Decision sets out a pre-supply sequence that both parties must complete before the date of supply:

خطوة	Requirement
Recipient	Submits two written declarations to the supplier, confirming that (i) the Metal Scrap is for resale or Processing, and (ii) the recipient is registered with the FTA for VAT.
Supplier	Receives and retains both declarations as part of its tax records. Verifies the recipient’s VAT registration, including its Tax Registration Number (“TRN”), by the methods approved by the FTA. Includes an explicit statement on the tax invoice that the RCM applies.

Practical point. VATP047 requires the declarations and verification to be completed before each qualifying supply. The two declarations may be combined into a single document, provided they cover the relevant supply and are available to the supplier before the date of supply. A suggested invoice wording is: “Reverse Charge Mechanism applies – Cabinet Decision No. (153) of 2025”.

6. Obligations of the supplier and the recipient

Party	Obligations where the RCM applies
Supplier	Does not charge VAT on the tax invoiceStates on the invoice that the RCM appliesDoes not account for output tax on the supply or include it in its VAT returnVerifies the recipient’s VAT registration and retains the written declarations
Recipient	Accounts for the VAT due on the supply as output taxReports the supply in the relevant boxes of its VAT return (Section 7)Recovers the related input tax, subject to the normal recovery rulesMaintains the declarations and supporting documentation

7. VAT return treatment

The recipient reports the transaction on both sides of its VAT return: as output tax under “Supplies subject to the reverse charge provision” (الصندوق 3) and as the corresponding input tax (Box 10). Where the recipient is entitled to full recovery, the two entries offset and the transaction is cash-flow neutral, provided both boxes are completed. Reporting only one side produces an incomplete or incorrect return. Where recovery is restricted, for example because of exempt supplies, the unrecovered VAT becomes a cost to the recipient.

Illustration

A registered scrap dealer sells Metal Scrap to a registered recycler for AED 100,000, and all conditions are met.

	Supplier	Recipient
Invoice	Issues an invoice for AED 100,000 with no VAT, stating that the RCM applies	Receives the invoice and holds the declarations on file
Output tax	None	AED 5,000 (5% of AED 100,000) in Box 3
Input tax	Not applicable	AED 5,000 in Box 10, if fully recoverable
Net cash effect	No VAT collected or remitted on the supply	Nil (output tax equals input tax)

Figures are illustrative only.

8. When the RCM does not apply

In the following cases the normal VAT treatment continues to apply:

Scenario	Supplier	Recipient
Zero-rated supply under Article (45)(1) of the Decree-Law, including direct and indirect exports	Ordinary zero-rating rules apply	Not applicable
Recipient not registered for VAT	Charges VAT at the standard rate of 5%	No input tax recovery (not registered)
Own use: the recipient neither resells nor processes the scrap	Charges VAT at the standard rate	Recovery governed by the normal rules under Article (54) of the Decree-Law
Declarations not provided before the date of supply	Cannot apply the RCM; accounts for VAT under the normal rules	Cannot treat the scrap as intended for resale or Processing under Article (54)(1)(a) and (b), so input tax recovery is denied
Non-qualifying material: paper, plastic, glass or rubber scrap	Charges VAT at the standard rate	Recovery under the normal rules

9. Key risk areas

Who	Common exposure
Suppliers	Continuing to charge 5% VAT “by habit” on qualifying suppliesApplying the RCM without obtaining the declarations or verifying the recipient’s registration, leaving the supplier to account for the VATOmitting the RCM statement from the invoice
Recipients	Claiming input tax without declaring the matching output taxNot providing the declarations before the date of supply, which puts input tax recovery at riskWeak audit trail linking declarations, invoices and return entries
Both	Invoicing templates and ERP tax codes not updated, especially for mixed customer bases of registered and unregistered buyersReturns filed since 14 January 2026 that did not apply the mechanism correctly

Non-compliance may result in incorrect VAT reporting and exposure to assessments and administrative penalties under the applicable tax legislation. Where past returns are found to be incorrect, businesses should consider whether a voluntary disclosure to the FTA is required.

10. Recommended next steps

#	Action	Suggested owner	Timing
1	Scope: identify transactions in scope across contracts, supply arrangements and customer and supplier profiles, including the VAT status of each counterparty.	Tax / Finance	Immediately
2	Look back: review returns filed since 14 January 2026 for scrap transactions and assess whether corrections or a voluntary disclosure are needed.	Tax / Finance	Immediately
3	Declarations: implement a workflow to obtain, check and retain both declarations before each supply, and verify TRNs through the FTA’s approved channel.	Sales / Procurement	Before next supply
4	Invoicing and ERP: update templates and tax codes so that qualifying invoices carry the RCM statement and no VAT.	Finance / IT	Before next invoice run
5	Return mapping: map affected transactions to Box 3 and Box 10 and test the reporting before filing.	Tax	Before next filing
6	Training and records: brief sales, procurement and accounts teams, and retain declarations, invoices and verification evidence per the Tax Procedures Law.	Tax / Finance	Ongoing

11. How AZ Advisory can help

• Assessing whether your metal scrap transactions fall within the scope of the RCM
• Reviewing past VAT returns and supporting any corrections or voluntary disclosures
• Drafting the required declarations and updating invoicing and contract templates
• Aligning ERP configuration and VAT return reporting (Box 3 and Box 10) with the requirements
• Supporting you during any FTA review of your metal scrap transactions

تحدث إلينا Early preparation will ensure that your contracts, invoicing, declarations and VAT return reporting are aligned before your next filing. Please speak to your usual AZ Advisory tax contact to discuss how the Decision and VATP047 may affect your organisation.

مصادر

• Federal Tax Authority, VAT Public Clarification VATP047 (2 October 2026), via FTA Guides, References & Public Clarifications
• UAE Legislation Portal, Cabinet Resolution No. (153) of 2025 on the Application of the Reverse Charge Mechanism to the Trade of Scrap Metal between Registrants in the State for VAT Purposes: uaelegislation.gov.ae
• UAE Ministry of Finance, announcement of 19 December 2025: mof.gov.ae

Disclaimer. This Tax Alert has been prepared for general information purposes only and does not constitute tax or legal advice. The application of the Reverse Charge Mechanism should be assessed on the specific facts and circumstances of each taxable person, with reference to the applicable UAE legislation, Cabinet Decision No. (153) of 2025 and the guidance issued by the Federal Tax Authority, including Public Clarification VATP047. This publication reflects the position as at 7 October 2026.