Scrap Metal VAT Reverse Charge Shifts Cash Flow for UAE Buyers

Cabinet Decision No. 153 of 2025 took effect on 14 January 2026. On domestic scrap metal sales between two VAT-registered businesses, the seller stops charging 5% and the buyer self-accounts for the VAT. The buyer must give a written declaration before the date of supply, and the seller must verify the TRN and state the reverse charge on the invoice.

What actually changed on 14 January 2026?

The decision is dated 4 November 2025, was published in the Official Gazette on 26 November 2025, and was announced publicly by the Ministry of Finance on 19 December 2025. It entered into force 60 days after gazette publication, which lands on 14 January 2026. Four dates circulate in coverage, and several outlets rounded the effective date to 1 January. That rounding matters. If your date of supply falls between 1 and 13 January 2026, the old treatment applies and the seller charges VAT in the normal way.

The mechanism itself is simple. For qualifying local supplies of metal scrap between registrants, the obligation to account for VAT moves from the supplier to the recipient, whether the recipient is buying for resale or for processing scrap into material used in manufacturing new products. The decision sits under Federal Decree-Law No. 8 of 2017 on VAT and Cabinet Resolution No. 52 of 2017. The Ministry of Finance framed the policy aims as tightening tax system efficiency, cracking down on fraudulent practices in metal scrap trading, and supporting voluntary compliance without damaging business competitiveness.

One correction worth making early, because you will read the opposite elsewhere: 2026 is the first year of enforcement, not the first full year. The first complete calendar year under the rule is 2027, and the first FTA reviews of scrap reverse charge files will be looking at a stub period that begins mid-January.

Do I still charge VAT on scrap metal sales in the UAE?

Not if all three procedural conditions are satisfied before the date of supply. If any of them is missing, the reverse charge does not apply to that supply and the normal 5% treatment stands. The Ministry of Finance wording is specific about the sequence, and "prior to the date of supply" is the phrase that will decide most disputes.

1. The buyer issues a written declaration to the supplier confirming two things: that the metal scrap is received for resale or for use in processing, and that the buyer is registered with the Federal Tax Authority.
2. The supplier obtains and retains that declaration, verifies the recipient's FTA registration, and states explicitly on the invoice that the reverse charge mechanism applies. Verification means a live check of the TRN, not a number copied from an invoice issued eighteen months ago.
3. The buyer accounts for the VAT due and meets every tax obligation arising from the supply, declaring output tax and, subject to the normal recovery rules, the corresponding input tax in the same return.

PwC's implementation checklist for taxable persons covers the same ground from the operations side: reassess supply contracts, update invoicing templates so the reverse charge statement is not a manual afterthought, verify counterparty registration status, collect the declarations, and train the people who actually cut the paperwork at the weighbridge.

Does the reverse charge apply if one party is not VAT-registered?

No. The mechanism only operates between two UAE VAT registrants. This is where a lot of commentary has gone wrong, including the assumption that buying from unregistered informal collectors creates a reverse charge failure. It does not. Those transactions simply fall outside the mechanism.

The real exposure with cash-bought material from unregistered collectors is substantiation, not reverse charge mechanics. There is no input tax to recover, and the provenance record behind the onward sale is thin. When you later sell that material into a registered buyer under the reverse charge, your file needs to show where the tonnes came from, how they were weighed and who signed for them. A yard in Al Quoz or Ras Al Khor that buys mixed non-ferrous over the counter and sells baled copper to a mill has a documentation problem long before it has a VAT problem.

Which rule applies to your load?

Where does the cash actually move?

For a fully taxable buyer, the net VAT position does not change. What changes is timing. The buyer no longer funds 5% of every purchase at the point of payment and then waits for the return cycle to recover it. On a business buying a few hundred tonnes of ferrous a month, that is working capital released permanently, not a one-off.

The seller loses the mirror image of that benefit, the VAT float it used to hold between collection and remittance. Sellers who have been running on that float will feel the change in January and February 2026 rather than at year end. If your quoted prices were historically stated VAT-inclusive, the printed number now means something different, and both sides of the trade need to agree in writing whether a quote is inclusive or exclusive before the first load moves. We have seen this cause more argument than the tax itself. If you benchmark against published ferrous assessments, check the assessment basis too, because local HMS 80:20 reference levels are only comparable to your own numbers when the VAT basis matches.

One more group is genuinely worse off. A partially exempt buyer, or one with restricted input recovery, declares output tax under the reverse charge but recovers input tax only under the normal rules. For them the mechanism creates real cost, not just a timing change.

Where does the audit risk sit now?

Read the three conditions as three separate failure points, because that is how a reviewer will read them. The most common defects will be procedural rather than substantive.

• Stale TRN. The supplier must verify registration. A buyer that deregistered between contract signature and delivery breaks the mechanism, and the supplier carries the consequence of not having checked.
• Missing or back-dated declaration. The declaration must precede the date of supply. A declaration signed during an audit is the obvious and easily spotted failure.
• Purpose drift. The declaration certifies resale or processing. Material bought under declaration and then consumed for another purpose sits outside what was certified.
• Invoice wording. No explicit reverse charge statement means a defective tax invoice, even where every other fact is correct.
• Mixed loads. A single line covering in-scope metal scrap and out-of-scope material invites reallocation by the reviewer.
• Charging VAT you should not have charged. Applying 5% to a supply that qualified for the reverse charge is as much a defect as omitting it.

We are not publishing penalty amounts here. The administrative penalty regime has been amended more than once, and figures circulating in advisory content are frequently out of date. Pull the current schedule from the FTA before you quote a number to your board.

What about free zones and Designated Zones?

This is the question we get most often from traders in JAFZA and Hamriyah, and it deserves an honest answer rather than a confident one. The decision as announced addresses supplies of metal scrap between registrants in the UAE. Designated Zone rules under the VAT Executive Regulations already treat certain movements of goods as outside the scope of VAT, and the interaction with the new reverse charge is not something you should infer. For the two earlier decisions the FTA issued public clarifications, VATP034 for electronic devices and VATP043 for precious metals and stones. At the time of writing we have not located an equivalent published clarification for metal scrap. Check the FTA publications page, and get a written position from your tax adviser for zone-to-mainland flows before your next shipment.

The scope of the term "metal scrap" itself needs the same discipline. Secondary commentary describes it as covering ferrous and non-ferrous scrap, but the definition that binds you is the one in the gazette text. If your loads include precious metal bearing material such as catalyst or jewellery sweeps, note that investment grade precious metals at 99% purity or more remain zero rated, and precious metal scrap is more likely to sit under Cabinet Decision No. 127 of 2024, effective 15 February 2025, than under the new scrap decision. More on the wider compliance picture sits in our regulation coverage.

This is a tax rule, not an environmental one

A perfectly drafted reverse charge invoice tells you nothing about whether the yard on the other side holds a valid waste handling permit, or whether the load was transported by a licensed hauler. Two different regimes, two different files, two different regulators. If you are matching tax paperwork to movement paperwork, the digital trail behind Dubai waste transfer notes is the easier of the two to reconstruct after the fact.

How verified counterparties and escrow keep the trail intact

The reverse charge rewards businesses that can prove who they traded with and when. That is exactly the record a marketplace should be producing as a by-product of the deal. Every counterparty on AlKhiidma is KYC-verified through UAE PASS, so the entity you contract with is the entity on the invoice, and registration details sit on file rather than in someone's WhatsApp history.

Settlement runs through escrow with MyFatoorah, with a 48-hour buyer inspection window before funds release. That produces timestamped evidence of the listing, the acceptance, the inspection outcome and the payment, all attached to the same transaction as the weighbridge figures. When a reviewer asks you to demonstrate that a declaration existed before the date of supply, a dated transaction record settles it in minutes. You can see what is trading now in our metals listings, and the audit-ready export is available on the same transactions for your ESG and tax files.

Practical sequence for the rest of 2026: rebuild your invoice template once, collect declarations as part of onboarding rather than per load, re-verify TRNs quarterly for repeat buyers in Musaffah, Al Sajaa and Dubai Industrial City, and keep one folder per counterparty rather than one per invoice. The businesses that do this in the first quarter will spend the rest of the year selling metal instead of reconstructing paperwork.

Frequently asked questions