How to Apply RCM on Metal Scrap Trading in UAE (Jan 2026)

VAT on Scrap Metal Trading in the UAE 2026

The UAE is concentrating on enhancing the process, and continuous development is a key aspect of the UAE.

One of the primary efforts of the UAE is to improve VAT compliance and prevent tax fraud, especially in high-risk sectors. The authority has introduced a new rule specifically for scrap metal traders. Let us look into the same in detail.

Effective 14 January 2026, the Reverse Charge Mechanism (RCM) will become mandatory for all the eligible transactions mentioned under the Cabinet Decision No. 153 of 2025 on the Application of the Reverse Charge Mechanism on Metal Scrap

This new rule has significant changes in how the VAT is accounted for in the metal recycling and scrap industry.

 Disclaimer: The examples and company names used in this blog are fictional and solely for educational purposes only.

What is the Reverse Charge Mechanism?

Firstly, we need to understand what RCM is!

Under RCM, the buyer (recipient of the goods) is responsible for the following and not the supplier:

• Charging VAT
• Reporting VAT in VAT returns
• Paying VAT to the FTA

The purpose of having RCM is to reduce VAT fraud and avoid missing the trader operations in sectors with high VAT refund claims, including metal scrap.

Which Businesses Are Affected?

RCM will be applicable only when both parties dealing with are VAT-registered, and the supply is:

✔ Happening within the UAE

✔ Is related to metal scrap trading

✔ The transaction is made to a taxable person for business use only

What Types of Metal Scrap Are Covered?

As per this Decision, scrap metals mean:

• Ferrous metals (e.g., iron, steel scrap)
• Non-ferrous metals (e.g., copper, aluminium, nickel)
• Scrap generated from:
• Demolition
• Industrial processing
• Mechanical operations

If you are unsure whether the scrap material you deal with qualifies or not, the FTA has ​​​​​​requested to obtain a written classification on the confirmation from your tax advisor. If required, a private clarification will be more beneficial.

VAT Invoicing Rules under RCM

We must be aware of the common VAT rules in the UAE; however, under RCM, there are some special rules to be followed. Especially on the invoicing, the suppliers must issue a tax invoice, but:

• However, do not charge VAT
• Include the mandatory wording such as: “VAT due on this supply is payable by the recipient under the Reverse Charge Mechanism.”

It is the responsibility of the supplier to confirm that the buyer has a valid TRN.

Practical Example: How RCM Works

Current RCM (Old Method)

Following this method has resulted in frequent refund claims, which have resulted in higher audit risk.

After RCM (New Method)

Under the new method, we observe that the Net VAT impact often becomes zero for fully recoverable buyers; however, the paperwork must be accurate and well-maintained.

Example Case — UAE Scrap Trading Company

ScrapHub Recycling LLC sells:

• AED 500,000 worth of copper scrap
• To SteelTech Industries, a VAT-registered buyer

v ScrapHub issues invoice for AED 500,000, no VAT

v SteelTech declares VAT in Box 3 & Box 10 of VAT return

Results:

• It is fully compliant
• No cash VAT movement
• No need for VAT refund request

Risks of Non-Compliance

Businesses failing to apply RCM correctly may face:

• Wrong VAT charging → financial penalties
• Incorrect VAT claims → repayment + penalties
• Invoice errors → return rejections
• FTA audits → scrutiny of entire supply chain

Results of non-compliance will lead to penalties under the VAT Law, which may include:

• Fixed penalties for invoice errors
• Up to 4% monthly interest on unpaid VAT
• Fines for incorrect RCM reporting

Who Benefits Most?

It is important to know who is beneficial in the process:

✔ Scrap traders supplying only to VAT-registered industrial buyers

✔ Businesses wanting to avoid cash VAT outflow

✔ Companies worried about VAT refund audits

✔ Scrap suppliers with a high volume of B2B transactions

What are the Best Practices for Traders Before Go-Live in 2026

We recommend the business owners to begin early implementation readiness from 2025.

Need Help Implementing RCM for Scrap Trading?

Flyingcolour Tax Consultant assists businesses in:

✔ VAT treatment review for scrap & recycling industry

✔ Invoice redesign + TRN validation logic

✔ System setup & compliance checklists

✔ FTA audit support and voluntary disclosures

✔ VAT registration for new traders

Frequently Asked Questions (FAQs)

1️ Do suppliers stop issuing tax invoices from 14 Jan 2026?

Yes. The commercial invoice is required to be raised with the note that the invoice is under Domestic RCM. However, the tax invoice shall not be issued by the supplier.

2️ What if the buyer is not VAT-registered?

RCM does not apply in the case where the buyer is not VAT registered; the supplier must charge 5% VAT.

3️ Do scrap exporters fall under RCM?

If the scrap is exported, VAT will be zero-rated, not RCM.
If scrap remains in the UAE, RCM will be applicable (considering that the buyer is VAT registered and the goods are for resale purposes).

4️ Does RCM cover plastic scrap or e-waste?

No, this rule is specific to metal scrap only.

5 Can a buyer recover VAT under RCM?

Yes, if eligible, the buyer can, however, only with valid documentation.

To learn more about How to Apply RCM on Metal Scrap Trading in UAE (Jan 2026), 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.