The UAE Federal Tax Authority has clarified how a new reverse charge mechanism will apply to metal scrap sales between VAT-registered businesses, shifting the responsibility for accounting for VAT from suppliers to buyers.
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has issued Public Clarification VATP047 on Cabinet Decision No. 153 of 2025, which makes the reverse charge mechanism mandatory for metal scrap trading between UAE VAT registrants. The mechanism takes effect on 14 January 2026.
Issued under Article 48(8) of the UAE VAT Law, the mechanism shifts the burden of accounting for VAT from the supplier to the recipient.
Goods covered
The mechanism applies strictly to ferrous or non-ferrous metal waste that has commercial value and can be used after processing.
It also covers composite products made up mainly of metal waste, where metal is the principal component extracted during processing. Used lead-acid batteries at the end of their lifecycle fall into this category, even if they contain minor quantities of plastic or electrolytes.
Non-metal scrap, including paper, plastic, glass, textiles, organic waste and rubber, is excluded from Cabinet Decision No. 153 of 2025 and remains subject to normal VAT rules.
Conditions for application
The reverse charge mechanism applies only if a transaction meets all of the following conditions:
- Both the supplier and the recipient must be registered for UAE VAT.
- The recipient must acquire the metal scrap with the intention either to resell it or to use it in processing.
Resale means selling the scrap, wholesale or retail, as part of the recipient’s business of trading in metal scrap. Buying scrap for internal operational maintenance, such as repairing storage racks or fencing, does not count as an intention to resell.
Processing means converting metal scrap into materials usable for manufacturing new products, such as building materials or vehicle parts, through recycling, repair or other methods.
Tax treatment and return reporting
For qualifying transactions, the supplier does not charge VAT on the supply and must not report the supply or the VAT amount in its VAT return.
The recipient accounts for the due tax under the reverse charge mechanism and assumes all resulting tax obligations. It reports the output tax in Box 3 and recovers the input tax in Box 10 of its VAT return. Box 9 must not be used.
Default rule for non-qualifying transactions
If the eligibility conditions or compliance requirements are not met before the date of supply, the default VAT rule applies. The supplier must then charge standard VAT and declare the tax in Box 1 of its VAT return. The recipient cannot recover the input tax incurred on the purchase.
Compliance steps before supply
To apply the mechanism lawfully, certain steps must be completed before the date of supply.
The recipient must provide a written declaration stating its intention to buy the metal scrap for resale or processing. It must also provide a written declaration confirming its active VAT registration details, including its Tax Registration Number (TRN). Both declarations may be combined into a single written document.
The supplier must receive and retain the recipient’s written declaration or declarations. It must also formally verify the recipient’s VAT registration status using the TRN Verification Tool on the FTA portal. In addition, the supplier must issue a tax invoice that explicitly states that the supply is subject to the reverse charge mechanism.
Exports excluded
Cabinet Decision No. 153 of 2025 does not apply to direct or indirect exports of metal scrap. If the criteria for zero-rating exports under Article 45(1) of the VAT Law are met, standard VAT rules apply, and the supplier must report the transaction as a zero-rated supply in its tax return.
Businesses trading in metal scrap in the UAE should review their documentation and invoicing processes ahead of 14 January 2026, as failure to meet the prerequisites before the date of supply will revert the transaction to standard VAT treatment and leave the recipient unable to recover input tax.
