The announcement of the implementation of the “reverse charge mechanism” on scrap metal trading for VAT purposes marks a significant shift for businesses involved in this sector. Starting from January 14, 2026, this initiative, introduced by the UAE Ministry of Finance, aims to enhance tax efficiency and combat fraudulent practices in the scrap metal trade. By transferring the responsibility for VAT calculations from sellers to buyers, the reverse charge mechanism intends to foster transparency and compliance within the industry.
Details of the Decision
The Ministry of Finance revealed that Cabinet Decision No. 153 of 2025 paves the way for the application of the reverse charge mechanism on transactions involving registered parties within the country. This decision is grounded in the provisions of Federal Decree Law No. 8 of 2017 and its amendments, alongside Cabinet Decision No. 52 of 2017, which details the executive regulation of this decree.
The adoption of the reverse charge mechanism aims to enhance the tax system’s efficiency and curb fraudulent activities linked to the scrap metal trade. By doing so, it promotes fair taxation and voluntary compliance, ultimately supporting a transparent tax environment and sustaining the competitiveness of the UAE’s business ecosystem.
Operational Framework
The newly implemented reverse charge mechanism mandates that tax obligations for VAT transactions between suppliers and purchasers of scrap metal now fall on the buyer. This shift means that those intending to sell the scrap or repurpose it into new products are now responsible for calculating and settling any associated tax liabilities. Suppliers, in this framework, will no longer calculate tax liabilities for these trades.
Furthermore, both suppliers and recipients must adhere to specific procedures before a transaction occurs. This includes providing written declarations from buyers to sellers, indicating that the scrap metal will be used for resale or processing, with confirmation of registration with the Federal Tax Authority.
Compliance and Transparency
Suppliers are required to receive and verify these declarations and ensure that their buyers are registered with the Federal Tax Authority. Additionally, invoices must explicitly state the application of the reverse charge mechanism for the relevant transaction.
According to the Ministry of Finance, implementing this new mechanism is expected to reduce incidences of tax fraud while improving the management of tax recovery processes within the scrap metal trade.
The ministry emphasizes that this decision is integral to the nation’s vision of developing a holistic financial system that promotes transparency and sustainability and enhances trust in the tax framework of the UAE.
The effective application of the reverse charge mechanism on scrap metal trading underscores the ongoing commitment of the UAE government to strengthen its tax regime, positioning the country as a leader in financial integrity and business reliability.