The UAE Ministry of Finance has issued Cabinet Decision No. 153 of 2025, introducing the Reverse Charge Mechanism (RCM) for specific supplies of metal scrap within the UAE. This change represents a significant development in the VAT treatment of the scrap and recycling sector and is effective from 14 January 2026.
The new rules shift the responsibility for VAT accounting from the supplier to the recipient in qualifying transactions, aligning the UAE VAT framework with international best practices and strengthening tax compliance in high-risk sectors.
Overview of the Reverse Charge Mechanism
Under the standard VAT regime, suppliers charge VAT on taxable supplies and remit it to the Federal Tax Authority (FTA). Under the Reverse Charge Mechanism, this responsibility is transferred to the recipient of the goods, who must self-account for VAT in their VAT return.
For metal scrap trading, RCM applies to local supplies between VAT-registered businesses, subject to specific conditions outlined in the Cabinet Decision.
Definition of Metal Scrap
For VAT purposes, metal scrap includes:
- Ferrous and non-ferrous metal waste
- Scrap that has commercial value
- Materials capable of being recycled, recovered, or further processed
Processing includes activities such as recycling, melting, reshaping, or any transformation that enables the metal to be reused in manufacturing or resale.
Scope of Application
Transactions Subject to RCM
The reverse charge mechanism applies where:
- The supply involves qualifying metal scrap
- Both supplier and recipient are VAT-registered in the UAE
- The recipient intends to resell or process the metal scrap
- The recipient provides a written declaration confirming eligibility
Transactions Outside the Scope
RCM does not apply in the following cases:
- The recipient is not VAT-registered
- The supply is zero-rated, such as qualifying exports
- The required declaration is not provided
- The transaction falls outside the scope of UAE VAT
In these cases, normal VAT rules apply and the supplier must charge VAT.
VAT Responsibilities Under RCM
Supplier Obligations
Suppliers of metal scrap are required to:
- Verify the recipient’s VAT registration status
- Obtain and retain a written declaration from the recipient
- Issue a tax invoice without VAT
- Clearly state on the invoice that VAT is subject to the Reverse Charge Mechanism
Suppliers will not account for output VAT on qualifying RCM supplies.
Recipient Obligations
Recipients must:
- Self-account for VAT on the transaction under RCM
- Declare VAT as output tax in their VAT return
- Recover input VAT, subject to standard VAT recovery rules
- Maintain proper documentation to support VAT treatment
Business Impact and Compliance Considerations
Cash Flow Efficiency
RCM removes the requirement for VAT to be paid upfront to suppliers, which can improve cash flow management for both parties.
Increased Compliance Responsibility
The shift of VAT liability places greater responsibility on recipients to ensure accurate VAT reporting and record-keeping.
Systems and Process Readiness
Businesses should review and update:
- Invoicing and ERP systems
- VAT reporting processes
- Contracts and commercial documentation
- Internal tax control frameworks
Early preparation will help mitigate compliance risks and potential penalties.
Strategic Rationale
The introduction of RCM on metal scrap trading aims to:
- Reduce VAT evasion and fraud in high-risk industries
- Strengthen tax governance and transparency
- Enhance the efficiency of VAT collection
- Align the UAE VAT system with international standards
This approach is consistent with the UAE’s existing reverse charge treatment for sectors such as precious metals and electronic devices.
How Tax Gian Can Assist
Tax Gian can assist businesses with:
- VAT impact assessments
- RCM implementation reviews
- Documentation and declaration templates
- ERP and invoicing system alignment
- Ongoing VAT compliance support
Our tax consultants in the UAE help ensure a smooth transition and full compliance with the new VAT requirements.
Frequently Asked Questions (FAQs)
1. When does the Reverse Charge Mechanism for metal scrap take effect?
The RCM will apply from 14 January 2026
2. Does RCM apply to all metal scrap transactions?
No. It applies only to local supplies of metal scrap between VAT-registered businesses where the recipient intends to resell or process the scrap and provides a written declaration.
3. Will suppliers still issue tax invoices?
Yes. Suppliers must issue tax invoices without VAT, clearly stating that the transaction is subject to the Reverse Charge Mechanism.
4. Who is responsible for paying VAT to the FTA?
The recipient (buyer) is responsible for accounting for VAT under RCM through their VAT return.
