UAE VAT ALERT: REVERSE CHARGE NOW APPLIES TO SCRAP METAL TRADE

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INTRODUCTION:

The UAE Ministry of Finance has issued Cabinet Decision No. (153) of 2025 (‘New Decision’), mandating the applicability of the Reverse Charge Mechanism (‘RCM’) to the local supply of Scrap Metal or Metal Waste (sorted into magnetic (ferrous) or non-magnetic (non-ferrous) types between VAT-registered businesses in the UAE.

These changes will significantly influence the VAT compliance, especially for Scrap Metal Traders, Recycling and Processing businesses, and Manufacturing Entities.

WHAT YOU NEED TO KNOW ?

The UAE has introduced the Reverse Charge Mechanism (RCM) for scrap metal transactions between VAT-registered businesses, where the scrap metal is intended for resale or for use in processing.

Scrap Metal has been defined as “Waste of ferrous or non-ferrous metals that has a commercial value and is usable after Processing.”

Processing has been defined as “The process through which Scrap Metal is converted into materials usable for manufacturing new products, whether by repairing, recycling, or any other method.”

KEY IMPACT

Supplier:

The Supplier shall not be responsible to account for VAT and reporting the supply of scrap metal in their VAT return.

Recipient:

The Recipient shall be responsible for accounting for Output VAT and reporting the supply of scrap metal in their VAT return.

CONDITIONS TO APPLY RCM (Recipient):

• The Recipient is VAT-registered in the UAE.
• The Recipient intends to resell the scrap metal or use it in processing.
• The Recipient has provided a written declaration to the Supplier (prior to the date of supply) that he is registered for UAE VAT.
• The Recipient has provided a written declaration to the Supplier (prior to the date of supply) that the supply of Scrap Metal to him is for the purposes of resale or processing.

CONDITIONS TO APPLY RCM (Supplier):

• The Supplier verifies and confirm that Recipient is VAT registered;
• Retains the aforementioned declarations;
• Supplier includes an explicit statement on the Invoice indicating that the ‘Reverse Charge Mechanism applies

EXCEPTIONS:

The RCM mechanism does not apply in the following situations:

• The Recipient is not VAT registered;
• The Supply qualifies as a Zero-Rated, i.e., Direct or Indirect Export)
• The Recipient does not provide the Supplier with the requisite declarations. *
• The Transaction occurs outside the scope of UAE VAT. (e.g. within Designated Zones in specific conditions)

* Please note that, in case the VAT-registered recipient does not provide the necessary declarations, he shall not be permitted to recover input VAT related to the purchase of scrap metal.

EFFECTIVE DATE:

The New Decision was published in the official gazette on 14^thup November 2025 and will come into effect from 14^th January 2026.

RECOMMENDATION:

Businesses involved in the supply, purchase, resale, or processing of scrap metal should immediately review their VAT treatment, contracts, and invoicing procedures to ensure alignment with the newly introduced Reverse Charge Mechanism.

VAT-registered recipients must be prepared to self-account for VAT, while suppliers should ensure they obtain and retain the required declarations, verify VAT registration, and clearly state the application of the Reverse Charge Mechanism on tax invoices.

Early assessment and timely system updates will help avoid compliance risks, penalties, and cash flow disruptions once the Decision comes into effect.

HOW MBG CAN ADD VALUE ?

• Impact assessment to determine how the change affects your VAT position and transactions.
• Review of contracts and invoicing practices to ensure RCM compliance.
• Guidance on recipient and supplier declarations and documentation requirements.
• VAT return support to ensure correct self-accounting and reporting.
• Process and system readiness to align finance and ERP systems before the effective date.
• Ongoing advisory support to manage risks and avoid penalties.