Cabinet Decision No. 153 of 2025 introduces a mandatory Reverse Charge Mechanism for the supply of qualifying ferrous and non ferrous scrap metal in the UAE. Effective 14 January 2026, the responsibility to account for VAT shifts from the supplier to the buyer when specific conditions are met.
The change is designed to reduce VAT fraud risks and strengthen audit transparency within the scrap metal sector.
Why the Reverse Charge Mechanism Was Introduced
The scrap metal industry has historically faced risks related to missing trader VAT fraud. Under traditional VAT rules, suppliers collect VAT and remit it to the tax authority. In some cases, collected VAT was not remitted.
The Reverse Charge Mechanism addresses this risk by requiring the buyer to account for VAT instead of the supplier.
When Does RCM Apply
RCM applies only when all required conditions are satisfied.
| Requirement | Condition |
|---|---|
| Supplier | Must be VAT registered |
| Buyer | Must be VAT registered |
| Goods | Must qualify as scrap metal |
| Purpose | Buyer intends resale or processing |
| Documentation | Buyer declarations provided before supply |
If any condition is not met, the supplier must charge VAT under normal rules.
What Qualifies as Scrap Metal
Scrap metal includes ferrous or non ferrous metal waste that has commercial value and becomes usable after processing. Processing may include recycling, melting, refining, shredding, or conversion into manufacturing inputs.
Critical Documentation Requirement
RCM can only be applied when the buyer provides:
- Confirmation of VAT registration
- Declaration that goods will be resold or processed
These declarations must be provided before the date of supply. They cannot be issued retrospectively
What Happens if Declarations Are Missing
If valid declarations are not obtained:
- RCM cannot be applied
- Supplier must charge 5 percent VAT
- Incorrect treatment may trigger penalties during audits
This makes documentation control essential.
What Businesses Should Do Before January 2026
Suppliers and buyers should review invoicing procedures, update documentation workflows, verify TRNs, and ensure VAT return reporting reflects RCM transactions correctly.
Clear internal controls will be critical to avoid compliance risks.
MCA Gulf Perspective
MCA Gulf supports businesses in assessing the impact of RCM requirements, updating documentation processes, and aligning VAT reporting procedures with regulatory expectations.
For further technical insight, download the scrap metal RCM carousel below.
For clarification or implementation support, reach out to mcatax@mcagulf.com.
