UAE Metal Scrap VAT Reverse Charge: Rules & Compliance

UAE VAT Reverse Charge on Metal Scrap: Rules and Compliance Requirements from 14th January 2026

The UAE has introduced specific VAT rules on metal scrap trading between VAT-registered businesses. Under Cabinet Decision No. 153 of 2025, the reverse charge mechanism applies to qualifying supplies of metal scrap between UAE VAT Registrants from 14^th January 2026.

As per this, the suppliers are not required to charge VAT on the sale of metal scrap, where the conditions are satisfied. Instead, the buyer is responsible for accounting for VAT under the reverse charge mechanism.

There is a detailed explanation in the Public Clarification issued by the FTA on the scope of rules, categories of metal scrap covered, conditions to be satisfied and the compliance requirements for both suppliers and recipients.

For businesses involved in trading of metal scrap, recycling, processing or related activities, understanding these new requirements is important because several conditions are being attached to this reverse charge treatment. If they fail to meet the requirements, the normal VAT rules will apply.

What Is the Reverse Charge Mechanism for Metal Scrap?

Normally, a registered supplier charges VAT on their taxable supply and reports the output VAT in their VAT return.

For qualifying metal scrap transactions covered under Cabinet Decision No. 153 of 2025, this responsibility shifts to the recipient.

For the supplier:

• There is no need to charge VAT on their qualifying supply
• Not to report the output VAT on their returns
• Should retain the required declarations from the recipient.
• Must ensure the recipient is VAT registered.
• Must issue an invoice that clearly mentions that the supply is subject to the reverse charge mechanism.

The recipient:

• Accounts for VAT on the purchase under the reverse charge mechanism.
• Reports these transactions in its VAT return.
• Can recover eligible input tax subject to normal input tax recovery rules.

The important point is that this treatment does not apply automatically to every transaction involving scrap.
 

Which Metal Scrap Is Covered?

The reverse charge mechanism under Cabinet Decision No. 153 of 2025 specifically mentions the category of Metal Scrap covered.

The FTA clarification describes Metal Scrap as ferrous or non-ferrous metal waste that has commercial value and can be used for processing.

This can include goods that are mainly made from materials covered under the definition.

The clarification specifically states that the following materials are outside the scope:

• Paper
• Plastic
• Glass
• Textiles
• Organic waste
• Rubber

are outside the scope of Cabinet Decision No. 153 of 2025 and remain under normal UAE VAT rules.
 

When Does the Reverse Charge Apply?

There are two important requirements to consider:

1. The goods must qualify as Metal Scrap

2. The recipient must have the intention to resell the scrap or use it for Processing.

The recipient's intention is major criteria for determining whether the reverse charge applies.

Metal Scrap Purchased for Resale

It means the recipient purchases metal scrap as part of its metal scrap trading business.

The resale can take place either wholesale or retail level.

Metal Scrap Purchased for Processing

Processing of metal scrap means converting them into materials that can be used for manufacturing new products. This also includes repairing, recycling or other forms of processing.

For example, if a business purchases metal scrap and converted it into construction materials or new vehicle parts, the transaction may fall under reverse charge rules, provided all other conditions are satisfied.

However, simply using metal scrap in a business does not automatically mean that the recipient intends to resell or process it.

For example, if scrap is purchased for some maintenance purpose internally, such as repairing storage racks or fences , it cannot be considered as the recipient is purchased it with an intention to resell.

 

Key Conditions for Applying the UAE Metal Scrap Reverse Charge

The main conditions include:

What Must the Recipient Do?

The recipient is responsible for accounting for VAT under the reverse charge mechanism, provided conditions are satisfied.

Where all eligibility requirements are met, the recipient can declare the relevant purchase in Box 3 of the VAT return.

Where there is recoverable input tax, it can be shown in Box 10.

Businesses should therefore ensure that their VAT return filings and accounting software are configured correctly for these transactions.

What Happens If the Conditions Are Not Met?

This is one of the critical points for businesses.

If the required conditions are not satisfied, the reverse charge mechanism will not apply, and normal VAT rules continue, meaning the supplier is required to charge VAT at the standard rate where applicable.

For example, if there is any failure by the recipient to provide the required declarations before supply, it means that the conditions under Cabinet Decision No. 153 of 2025 are not met. If this is the case, then the supplier must account for VAT on the supply and report it in Box 1 of its VAT return.

There are also restrictions for the recipient on input tax recovery in circumstances where the required conditions are not met.

This makes documentation and review before supply more important.
 

Common Mistakes Businesses Should Avoid

Businesses who are dealing in metal scrap should be particularly careful on the following:

1. Applying reverse charge to all scrap

This rule specifically applies to qualifying Metal Scrap. Paper, plastic, glass and other non-metal scrap are not covered automatically.

2. Assuming every scrap buyer qualifies

The person buying metal scrap must intend to resell or use it in Processing.

3. Accepting verbal confirmation

Only verbal confirmation is not sufficient to justify the transaction. The recipient must require declarations in writing before the supply.

4. Failing to verify the TRN

It is a mandatory requirement for the supplier to verify the recipient's VAT registration status.

5. Issuing an ordinary VAT invoice

The tax invoice for the particular transaction should clearly indicate that the qualifying supply is subject to reverse charge mechanism.

6. Incorrect VAT return reporting

Both the supplier and the recipient need to make the correct VAT return treatment while return filing and accounting.

What Should UAE Metal Scrap Businesses Do?

Businesses involved in trading of metal scrap should review their procedures and consider implementing a proper documented process for every qualifying transaction.

This can include:

• Identify the products that qualify as Metal Scrap
• Check the intention of the customers, whether they are purchasing the scrap for resale or Processing
• Make a standard format for recipient declaration
• Make sure to obtain the declaration before supply
• Verify customer TRNs through the TRN validation services by FTA
• Make a proper template for tax invoice
• Configure accounting software to properly record for reverse charge transactions
• Review VAT return preparation and reporting
• Maintain supporting documents
• Give adequate training for sales, purchasing and finance teams on the new requirements

These steps can help the business with the correct treatment of the reverse charge mechanism.

How Flying Colour Tax Consultant Can Help

Flying Colour Tax Consultant assists UAE businesses with VAT compliance and advisory services, including :

• VAT registration and deregistration assistance
• VAT return preparation and filing
• Review on VAT compliance
• VAT advisory
• Support with FTA audit
• Submission of Voluntary disclosures
• Transfer pricing and documentation
• Compliance with corporate tax
• International tax advisory

If your business trades in metal scrap, recycling or processing, our team can help review your VAT treatment and compliance procedures.

Frequently Asked Questions

1. When did the UAE reverse charge for metal scrap become effective?

The rules under Cabinet Decision No. 153 of 2025 apply to qualifying supplies of Metal Scrap is effective from 14^th January 2026

2. Does the reverse charge apply to plastic and paper scrap?

No. The FTA clarification specifically mentions that paper, plastics, glass, textiles, organic waste and rubber out of scope under this decision and remain subject to normal VAT rules.

3. What must the recipient declare to the supplier?

It is required for the recipient to provide written declarations confirming their VAT registration status and stating that the metal Scrap is being purchased for resale or Processing. These declarations should be provided before the date of supply.

4. Does the supplier need to verify the customer's TRN?

Yes. The supplier must verify that the VAT registration status of the recipient using FTA's TRN verification functionality and keep the required documentation.

5. What happens if the recipient does not provide the required declaration?

In that case the conditions for applying the reverse charge mechanism is not met and the normal VAT rules will apply. The supplier must account for VAT at normal applicable rates.

6. Can a recipient recover VAT under the reverse charge?

Where the conditions for reverse charge are satisfied, the recipient can recover eligible input tax subject to applicable input tax recovery rules.

To learn more about UAE Metal Scrap VAT Reverse Charge: Rules & Compliance, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.