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UAE VAT Update: Introduction of Reverse Charge Mechanism on Metal Scrap Trading
UAE VAT Update: Introduction of Reverse charge mechanism on Metal Scrap Trading among registrants in the state for the purpose of VAT (Effective From 14th January 2026)
The Federal Tax Authority (FTA) has introduced an important update on the VAT treatment of metal scrap supplies through Cabinet Decision No. 153 of 2025, issued on November 14, 2025, and effective from January 14, 2026. The decision mandates the application of the Reverse Charge Mechanism (RCM) on metal scrap transactions between VAT-registered persons.
Under the decision, the reverse-charge mechanism will apply to eligible supplies between registrants within the metal-scrap sector.
Prior to this decision, supplies of metal scrap were treated as normal taxable supplies for UAE VAT purposes and were subject to either the standard rate or zero rate, depending on the nature of the supply, such as whether it was a local supply or an export.
Key Difference: Old rule vs new rule
Particulars Type | Old rule (Before 14 Jan 2026) | New rule (After 14 Jan 2026) |
|---|---|---|
VAT charged on Invoice | Standard Rated (5%)/ Zero rated (0%) | No VAT Charged |
Invoice Type | Tax Invoice | Tax Invoice (RCM Reference) |
Responsibility of VAT Reporting | Supplier | Buyer (Under RCM) |
Declaration | Not Required | Mandatory |
Compliance Risk | Normal | Higher (Due to documentation Requirement) |
Compliance Responsibilities
Buyer (Prior to supply)
- The buyer shall provide a written declaration confirming that the scrap is intended for resale or processing.
- The buyer shall provide a written declaration confirming that the buyer is registered for Value Added Tax (VAT).
Supplier (Prior to supply)
- Must obtain and retain both declarations received from the buyer.
- Verify the recipient VAT registration through FTA-approved means
- Issue an invoice explicitly stating the reverse charge mechanism
Failure to meet these requirements will result in the application of normal VAT rules.
*Declaration Format not issued by FTA specifically for the Metal Scrap sector till now.
Practical Implications for Businesses
Cash Flow: Buyers will no longer need to pay VAT on purchases, and suppliers will not be required to charge output VAT on supplies.
Compliance Responsibility: Both suppliers and buyers are required to maintain and obtain proper documentation
Changes in Business Process: Business must update the invoicing system, internal controls and contracts before January 2026.
Recommended Action Plan
- Identify transactions related to metal scrap trading
- Update invoice templates
- Strengthen or alter contract clauses related to VAT responsibilities
- Declaration format for Buyer
- Configure the accounting system for RCM
Conclusion
The Introduction of the reverse charge mechanism on metal scrap trading mark a significant shift in the UAE VAT framework. These changes transfer the VAT accounting responsibility from the supplier to VAT-registered buyers, while placing greater emphasis on documentation and verification procedures.
Businesses involved in metal scrap transactions must take proper steps to assess the impact of this change, update their system and contacts and ensure that all required declarations and controls are in place.
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