UAE Introduces Reverse Charge Mechanism for Metal Scrap Trading

UAE Introduces Reverse Charge Mechanism for Metal Scrap Trading

Effective from 14 January 2026

The UAE Ministry of Finance (MoF) has announced a significant VAT reform impacting the metal scrap trading sector. Through Cabinet Decision No. 153 of 2025, the UAE will implement the Reverse Charge Mechanism (RCM) on the supply of metal scrap between VAT-registered businesses, effective 14 January 2026.

This decision has been issued under the framework of Federal Decree-Law No. 8 of 2017 on Value Added Tax and Cabinet Resolution No. 52 of 2017 (Executive Regulations), reinforcing the UAE’s commitment to strengthening tax compliance and reducing VAT fraud.

What Is the Reverse Charge Mechanism?

Under the reverse charge mechanism, the responsibility to account for VAT shifts from the supplier to the buyer. Instead of the supplier charging VAT on the invoice, the VAT-registered buyer self-accounts for VAT in their VAT return.

This mechanism applies specifically to eligible supplies of metal scrap made between VAT-registered persons in the UAE.

What Is Changing from 14 January 2026?

With the implementation of Cabinet Decision No. 153 of 2025:

• Suppliers will no longer charge VAT on qualifying metal scrap supplies

• Buyers will calculate and declare VAT themselves under the reverse charge mechanism

• VAT will be reported in the buyer’s VAT return submitted to the Federal Tax Authority (FTA)

This change applies whether the buyer:

• Purchases metal scrap for resale, or

• Uses metal scrap for processing or manufacturing new products

Who Becomes Responsible for VAT?

Under the reverse charge mechanism, the buyer (recipient of the goods) is responsible for:

• Calculating the applicable VAT

• Declaring VAT in the VAT return

• Paying any VAT due to the FTA (where applicable)

Failure to apply the mechanism correctly may result in VAT exposure, penalties, and compliance risks.

Mandatory Procedural Requirements

To validly apply the reverse charge mechanism, both the supplier and the buyer must meet specific conditions.

Buyer Requirements

The buyer must provide a written declaration to the supplier confirming that:

• The metal scrap is purchased for resale, processing, or manufacturing, and

• The buyer is registered for VAT with the FTA

Supplier Requirements

The supplier must:

• Obtain and retain the buyer’s written declaration

• Verify the buyer’s VAT registration status with the FTA

• Clearly state on the invoice that the reverse charge mechanism applies

Non-compliance with these procedural requirements may lead to VAT and penalty exposure.

Expected Impact on the Metal Scrap Sector

According to the Ministry of Finance, this decision is expected to:

• Significantly reduce VAT fraud in the metal scrap industry

• Improve VAT refund processing efficiency

• Increase compliance, accountability, and audit transparency

• Strengthen confidence in the UAE’s tax framework

The metal scrap sector has been identified as a high-risk area for VAT leakage, making this targeted reform a critical step.

Why Has This Decision Been Introduced?

The Ministry of Finance has highlighted that the introduction of the reverse charge mechanism aims to:

• Enhance the efficiency of the UAE tax system

• Combat VAT evasion and fraud

• Promote tax fairness and voluntary compliance

• Protect the competitiveness and integrity of the UAE business environment

How Al Wahat Can Support Your Business

The introduction of RCM will require businesses to review contracts, invoicing processes, VAT returns, and internal controls.

At Al Wahat Accounts & Internal Audit Services, we assist businesses with:

• VAT impact assessments

• RCM applicability review

• Documentation and declaration support

• Invoice compliance checks

• Ongoing VAT advisory and filing support

📞 Contact Al Wahat Accounts & Internal Audit Services today to ensure your business is fully compliant with the new metal scrap VAT rules effective 14 January 2026.

📞 Call: +971 58 937 3943
📧 Email: info@alwahataudit.com
🌐 Website: www.alwahataudit.com

Disclaimer

This article is intended for general informational purposes only and does not constitute tax, legal, or professional advice. Businesses are advised to seek specific professional guidance based on their individual circumstances and refer to official publications issued by the UAE Ministry of Finance and the Federal Tax Authority.

Sources:
Ministry of Finance – UAE
Gulf News (Finance Update)