- VAT liability shifts to buyers under reverse charge mechanism
- Change expected to improve transparency across scrap trade
The UAE Ministry of Finance has issued Cabinet Decision No. 153 of 2025 on 19 December 2025, introducing a reverse charge VAT mechanism on the trading of all metal scrap — both ferrous and non-ferrous — between VAT-registered entities, effective 14 January 2026.
The decision is issued under Federal Decree-Law No. 8 of 2017 on Value Added Tax and Cabinet Resolution No. 52 of 2017 governing its executive regulations.
What will change?
Under the reverse charge mechanism, VAT responsibility will move from the seller to the buyer. Instead of paying VAT to scrap suppliers, buyers will self-account for VAT, whether the material is purchased for resale or for processing and manufacturing.
Earlier (Old system):
- Scrap sellers charged VAT on invoices
- Buyers paid VAT upfront to sellers
- Sellers later remitted VAT to tax authorities
Now (Reverse charge system):
- Scrap seller does not charge VAT on the invoice
- Buyer self-accounts for VAT in its VAT return
- No VAT amount is paid to the seller
This shift is expected to tighten compliance, reduce VAT leakages, and limit fraud, especially in a scrap market that has historically been exposed to under-reporting and cash-based transactions.
Market reaction has been largely positive. Several participants expect the move to increase fair competition among UAE scrapyards, shifting the focus away from tax arbitrage toward sales capability, quality, and service reliability.
Market comments
One market participant noted that organised and compliant players, who were previously unable to compete on pricing, are now likely to return more actively to the market.
Others believe the policy will create a level playing field, as VAT fraud and under-invoicing are expected to reduce significantly. Industry sources also highlighted that the reverse charge mechanism could ease working-capital pressure for scrap suppliers, since they will no longer need to collect VAT and wait for refunds.
Why was this decision made?
The decision lays down clear procedural requirements for both parties. Buyers must submit a written declaration confirming that the scrap is being purchased for resale or processing and that they are registered with the Federal Tax Authority (FTA). Suppliers, in turn, must verify the buyer’s FTA registration, retain the declaration, and clearly state on invoices that the reverse charge mechanism applies.
According to the Ministry of Finance, the move is part of a broader effort to enhance tax-system efficiency, encourage voluntary compliance, and maintain the UAE’s competitive business environment.
The framework aligns with similar reverse-charge mechanisms already implemented in sectors such as electronics, gold, and other precious metals, where compliance outcomes have been positive.
Near-term impact
In the near term, market activity is expected to remain largely stable, as participants await final operational clarity, likely by the second week of January. While immediate price movements may be limited, the reform is set to formalise scrap trading, reduce non-compliant practices, and gradually reshape competition in the UAE’s metal scrap market as the industry moves into 2026.
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