The UAE Ministry of Finance has issued a major policy update impacting businesses trading in scrap-metal across the country. Under Cabinet Decision No. 153 of 2025, the UAE will apply the reverse charge mechanism (RCM) on scrap-metal trading between VAT-registered businesses, effective 14 January 2026.

This move aligns with Federal Decree-Law No. 8 of 2017 on VAT and its Executive Regulations, and reflects the UAE’s long-term strategy to enhance tax transparency, reduce fraud, and strengthen the national tax framework.

For businesses operating in the scrap-metal sector, this reform represents a shift in VAT responsibility and requires preparation now to avoid non-compliance from 2026 onward.

What Is Changing?

Under the new rule, VAT accounting responsibility will shift from the supplier to the buyer when trading scrap-metal between VAT registrants within the UAE.

Before (Current System):

VAT is charged by the supplier on taxable sales.

After 14 January 2026 (New System):

VAT will not be charged by the supplier.
Instead, the buyer must self-account for VAT under the reverse charge mechanism.

Why the UAE Is Introducing RCM for Scrap-Metal Trading

The Ministry of Finance highlighted three major strategic drivers behind the change:

Reduce VAT Fraud & Tax Evasion

Scrap-metal trading is globally recognised as a high-risk sector due to cash-based transactions and recycling chains.

RCM removes opportunities for fraudulent invoice claims and false refunds.

Increase Efficiency in Tax Refund Administration

By shifting VAT liability to buyers, accounting becomes more transparent and easier for authorities to verify.

Strengthen Tax Fairness & Market Transparency

Standardising VAT control ensures fair trade conditions and reduces manipulation across the value chain.

The UAE has already implemented the reverse charge mechanism successfully in other high-risk sectors, including:

• Electronic devices
• Gold
• Precious metals

Scrap-metal is now the next focus area.

Who Is Affected?

This rule applies to VAT-registered buyers and suppliers trading scrap-metal within the UAE.

It also applies whether the metal scrap is purchased for:

• resale, or
• industrial processing (e.g., melting scrap into raw material).

Non-registered entities are not eligible; only transactions between registered UAE businesses qualify.

Key Compliance Requirements

Both parties must complete specific actions before the supply takes place:

Buyer must:

Provide a written declaration to the supplier stating:

• scrap is for resale OR processing
• buyer is VAT-registered
• Ensure VAT will be self-accounted under RCM

Supplier must:

• Obtain and retain the buyer’s declaration
• Verify buyer VAT registration
• Issue an invoice stating “Reverse Charge Mechanism applies”
• Not charge VAT on the invoice

Failure to meet documentary requirements may result in non-compliance penalties and VAT adjustments.

Impact on Businesses in the Scrap-Metal Sector

Positive Outcomes:

• Reduced capital strain for suppliers (no VAT to collect and remit)
• Lower cash flow pressure on buyers (VAT becomes input/output neutral)
• Improved industry transparency
• Greater alignment with international VAT controls
• Reduced risk of fraudulent VAT refund schemes

Operational Changes:

• Buyers will need to account for VAT reverse charge entries in VAT returns
• Suppliers must enhance invoice accuracy and documentation storage\
• Accounting systems require VAT coding updates
• Internal teams need training to avoid compliance errors

Why Act Now?

Although the rule becomes effective in January 2026, preparation must begin immediately.

Scrap-metal trading companies should:

• Review VAT systems
• Update chart of accounts
• Train finance teams
• Amend contracts
• Update invoicing procedures
• Implement internal controls
• Prepare documentation templates

Businesses who wait may face:

• return filing delays
• risk of rejected VAT claims
• audit findings
• fines and penalties

How The Capital Zone Supports Scrap-Metal Businesses with RCM Transition

At The Capital Zone, we help UAE businesses navigate VAT reform with confidence, clarity, and compliance.

Our Support Services Include:

• VAT reverse charge advisory
• Documentation template creation
• VAT registration verification workflows
• Invoice formatting and wording compliance
• Accounting process redesign
• Chart of accounts restructuring
• VAT return filing under RCM
• Training for internal finance teams
• System readiness assessment

We ensure a smooth, penalty-free transition to the new VAT structure and protect businesses from regulatory risk.

The Capital Zone is ready to guide every step.

Book a free consultation today to ensure your 2026 VAT compliance strategy is secure.