UAE Scrap Metal VAT Rule Change 2026 What Buyers and Sellers Must Know
UAE scrap metal industry is set to undergo a major VAT reform starting 14 January 2026. The Ministry of Finance has introduced Cabinet Decision No. 153 of 2025, bringing scrap metal transactions under the Reverse Charge Mechanism (RCM). This change will significantly impact how VAT is accounted for by buyers and sellers operating in the scrap metal sector.
The new rule is aimed at reducing tax fraud, improving compliance, and increasing efficiency in scrap metal trading across the UAE.
What Is Changing in UAE Scrap Metal VAT Rules
Currently, suppliers in the Dubai scrap metal market charge VAT on invoices and remit it to the Federal Tax Authority (FTA). From January 2026, this process will change completely for transactions between VAT-registered businesses.
Under the reverse charge mechanism:
- Sellers will no longer charge VAT
- Buyers will account for and report VAT themselves This change applies whether scrap metal is purchased for resale or for processing into raw materials used in manufacturing.
Understanding the Reverse Charge Mechanism for Scrap Metal in UAE
The reverse charge mechanism shifts the VAT responsibility from the seller to the buyer. In the UAE scrap metal sector, this means VAT-registered buyers must:
Who Will Be Affected in the UAE Scrap Metal Sector
The new VAT rule applies only when both parties are VAT-registered with the FTA. Affected businesses include:
- Scrap metal traders
- Recycling companies
- Manufacturing units purchasing scrap metal
- VAT-registered buyers and suppliers dealing in UAE scrap metal
If either the buyer or seller is not VAT-registered, the reverse charge mechanism will not apply.
Purpose of the New Scrap Metal VAT Rule
The Ministry of Finance introduced this change to address long-standing challenges in the UAE scrap metal trade, including:
- VAT fraud
- Fake invoicing
- Delayed or false VAT refund claims
Mandatory Documentation for UAE Scrap Metal Transactions
Proper documentation will be critical under the new system.
Requirements for Buyers
Buyers of UAE scrap metal must provide a written declaration confirming:
- The purchase is for resale or processing
They are registered with the Federal Tax Authority
Requirements for Sellers
Sellers must:
- Obtain and retain buyer declarations
- Verify the buyer’s VAT registration
- Clearly mention on the invoice that the reverse charge mechanism applies
Both parties must complete these steps before the date of supply to remain compliant.
Penalties for Non-Compliance
Although specific fines were not announced, non-compliance falls under:
- Federal Decree-Law No. 8 of 2017 (VAT Law)
- Cabinet Resolution No. 52 of 2017
Failure to comply with scrap metal VAT rules may result in penalties imposed by the Federal Tax Authority, including fines and administrative actions.
What UAE Scrap Metal Businesses Should Do Now
Businesses operating in the UAE scrap metal industry should:
- Review and update accounting systems
- Train finance and compliance teams
- Verify VAT registration status of trading partners
- Ensure invoice formats reflect reverse charge requirements
Final Note
The introduction of the reverse charge mechanism marks a significant regulatory shift for the UAE scrap metal sector. Staying informed and compliant will be essential for buyers and sellers to continue operations without disruption.
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Frequently Asked Questions (FAQs)
From 14 January 2026, VAT on UAE scrap metal transactions between VAT-registered businesses will be governed by the reverse charge mechanism, where buyers are responsible for accounting and paying VAT instead of sellers.
Under the reverse charge mechanism, sellers will not charge VAT on invoices. Instead, buyers of UAE scrap metal must self-account for VAT and report it in their VAT return.
The rule applies only when both the buyer and seller are VAT-registered with the FTA and the transaction involves UAE scrap metal purchased for resale or processing.
No. Sellers will issue invoices without VAT and must clearly mention that the reverse charge mechanism applies to the UAE scrap metal supply.
Buyers must:
- Be VAT-registered
- Provide a written declaration to the seller
Self-account VAT in their VAT return
NOTE:
The above note is subject to further study and clarification. It does not constitute a formal opinion from our end. Before making any decisions based on the above, we recommend consulting our experts on the subject.
