The UAE Cabinet has recently issued Cabinet Decision No. 153 of 2025, effective 14 January 2026, introducing the application of the Reverse Charge Mechanism (RCM) for metal scrap trading among registered businesses. This move is aimed at simplifying VAT compliance in the metal recycling and trading industry while ensuring accurate tax reporting.
What is the Reverse Charge Mechanism?
Under the RCM, the buyer of goods or services – rather than the supplier – is responsible for accounting for VAT. This mechanism is commonly used to reduce compliance burdens and prevent VAT fraud in certain sectors.
Key Highlights of the Decision:
Scope of Metal Scrap:
- Applies to both ferrous and non-ferrous metal scrap that have commercial value and can be reused after processing.
- Processing includes recycling, repairing, or converting scrap into materials for manufacturing new products.
How RCM Applies to Metal Scrap Trading:
- If a registered recipient purchases metal scrap for resale or processing, the recipient is responsible for accounting for VAT.
- The supplier does not charge or report VAT on the sale.
- This does not apply if the metal scrap is zero-rated under UAE VAT law.
Compliance Requirements:
Recipient responsibilities: Provide written declarations confirming:
- The metal scrap is for resale or processing.
- They are registered for VAT.
Supplier responsibilities:
- Obtain and retain these declarations.
- Verify the recipient’s VAT registration.
- Include a clear statement on the invoice about applying the Reverse Charge Mechanism.
Consequences of Non-Compliance:
If the recipient fails to provide the required declarations, they cannot apply RCM, and normal VAT rules will apply.
Implementation and Enforcement:
The Minister of Finance will issue the necessary implementing decisions.
The Cabinet Decision will take effect 60 days after its publication in the Official Gazette.
Conclusion:
This update is crucial for businesses dealing with metal scrap in the UAE. Companies must ensure proper documentation and VAT compliance under the RCM to avoid penalties. Proper planning and awareness can streamline VAT reporting and support efficient trading and recycling practices.
