New Reverse Charge Mechanism for Metal-Scrap Trading in the UAE
The Ministry of Finance (MoF) has recently announced an important update for businesses operating in the metal-scrap trading sector in the UAE. Cabinet Decision No. 153 of 2025 introduces a reverse charge mechanism that will come into effect on January 14, 2026. This change is designed to enhance the operational efficiency of the tax system while addressing potential fraud in the industry.
Understanding the Reverse Charge Mechanism
Under the new regulation, the responsibility for Value Added Tax (VAT) accounting during metal-scrap transactions will shift from the supplier to the buyer. This approach is in line with existing provisions of the Federal Decree Law No. 8 of 2017 regarding VAT and related amendments. By implementing this mechanism, the MoF aims to streamline processes for registered entities in the metal-scrap sector.
Aims of the New Regulation
The primary objective of this decision is to boost tax compliance and transparency. By requiring buyers to handle VAT accounting, the Ministry seeks to create a more equitable tax environment. This move is expected not only to promote compliance but also to help preserve the competitive landscape for businesses throughout the UAE.
Who Will Be Affected?
The reverse charge mechanism will specifically apply to eligible supplies between registered entities in the metal-scrap industry. Buyers who purchase metal scrap for resale or for processing into new materials will now bear the responsibility for accounting for the applicable VAT. Additionally, suppliers will no longer need to charge VAT on these supplies, which could simplify their invoicing processes.
Procedural Requirements
To ensure the transition is smooth, specific procedural requirements must be fulfilled prior to the date of supply. For instance, the recipient of the goods must provide a written declaration to the supplier. This document should confirm that the metal scrap is intended for either resale or processing, and it should also verify that the recipient is registered with the Federal Tax Authority (FTA). Suppliers are required to verify this registration and maintain the declarations as part of their records. Furthermore, invoices must clearly state that the reverse charge mechanism applies to the transaction.
Impact on Tax Fraud
The Ministry notes that the introduction of this mechanism is anticipated to significantly mitigate instances of tax fraud within the metal-scrap sector. It follows successful applications of similar measures in the electronics, gold, and precious metals industries. This strategic rollout aims to enhance the efficiency of tax refund administration while building a framework that promotes sustainability and trust in the tax system.
Continuing Commitment to Transparency
Overall, the Ministry’s decision aligns with the UAE’s vision for a robust financial framework that emphasizes transparency and sustainability. By applying these new regulations, the government hopes to foster a trustworthy tax environment that ultimately benefits businesses and consumers alike.
As the January 2026 implementation date approaches, businesses engaged in the trading of metal scrap are encouraged to prepare for these changes. Staying informed and compliant will enhance their operational efficiency and contribute positively to the overall business ecosystem.
