Application of Reverse Charge Mechanism on Metal Scrap Trading in the UAE

CABINET DECISION NO. 153 OF 2025

The UAE Ministry of Finance has issued Cabinet Decision No. 153 of 2025, introducing the Reverse Charge Mechanism (RCM) on the supply of metal scrap between VAT-registered persons in the UAE.

This decision marks a significant compliance change for businesses involved in scrap metal trading and processing.

EFFECTIVE DATE:The Decision will come into force from 14 January 2026.

APPLICABILITY OF THE REVERSE CHARGE MECHANISM (RCM)

Under the issued Decision, the Reverse Charge Mechanism shall apply where all of the following conditions are met:

• The supplier makes a supply of metal scrap

• The recipient is registered for VAT with the Federal Tax Authority (FTA)

• The recipient’s intention is to resell the metal scrap or use it for processing

In practice: This means that any local supply of metal scrap between two VAT-registered businesses, where the recipient intends to either resell it or use it in further processing, will fall under the RCM.

VAT TREATMENT UNDER RCM

RCM shifts the responsibility of VAT reporting from the supplier to the recipient.

Supplier Responsibilities	Recipient Responsibilities
The supplier does not charge VAT on the supply of metal scrap.	The recipient must report and pay VAT on such supply in accordance with FTA regulations.
The supplier does not account for VAT on the supply in their VAT return.	The recipient is responsible for accounting for the due VAT on the supply.
The supplier must retain the recipient’s written declaration confirming VAT registration and intention to resell or process the metal scrap.	The recipient must provide the supplier with a written declaration confirming: VAT registration with the FTA Intention to resell or process the metal scrap
The supplier’s invoice must clearly state that the transaction is subject to the RCM

EXCEPTIONS

The Reverse Charge Mechanism does not apply in the following cases:

• Supplies of metal scrap that are zero-rated under UAE VAT law.

• Supplies where the recipient fails to provide the required declaration confirming VAT registration and intended use.

Example:If a supplier delivers metal scrap to a recipient who does not provide a written declaration of VAT registration or intention to resell/process, the supplier must charge VAT at the standard rate, and the recipient may not even claim input VAT on the transaction.

CONCLUSION

Cabinet Decision No. 153 of 2025 represents a significant change in VAT compliance for the UAE metal scrap industry. By shifting VAT liability to the recipient, the government aims to simplify tax administration and strengthen compliance.

For businesses, the key to seamless implementation lies in:

• Maintaining robust documentation

• Adapting internal processes to reflect RCM obligations

• Ensuring clear communication with trading partners regarding VAT responsibilities

Proactive action today will minimize risks, prevent VAT disputes, and protect input tax recovery rights. Companies that implement strong controls and educate their teams will be well-positioned to comply smoothly when the Decision comes into effect.

DEFINITIONS

• Metal Scrap: Ferrous or non-ferrous metal waste that have commercial value and is useable following its Processing

• Processing: The operation through which Metal Scrap is converted into materials that can be used in the manufacturing of new products, whether by repairing, recycling, or any other method