The UAE Ministry of Finance has announced the implementation of a reverse charge Value Added Tax (VAT) mechanism for metal-scrap trading between VAT-registered businesses, effective from January 14, 2026. This strategic decision forms part of the government’s ongoing efforts to strengthen the efficiency, transparency, and integrity of the national tax system, while addressing specific challenges within the metal-scrap trading sector.
The new measure is introduced under the provisions of the Federal Decree-Law on Value Added Tax and its Executive Regulations. It aims to combat fraudulent practices that have historically affected high-volume and high-risk sectors, such as metal-scrap trading, where VAT evasion and false refund claims can occur. By shifting the responsibility for VAT accounting from the supplier to the buyer, the reverse charge mechanism reduces opportunities for tax abuse and improves oversight.
Under this system, VAT-registered buyers purchasing metal scrap for resale or for processing into new products will be responsible for calculating and reporting the VAT due on the transaction. Suppliers will no longer charge VAT on eligible supplies but must clearly state on invoices that the reverse charge mechanism applies. Both parties are required to meet specific procedural obligations, including verification of VAT registration and the submission and retention of written declarations confirming the intended use of the scrap materials.
This approach promotes greater tax fairness and voluntary compliance by ensuring that VAT is accounted for correctly and consistently across the sector. It also enhances operational efficiency by simplifying cash-flow management for suppliers, who will no longer need to collect VAT upfront or manage associated refund processes. For tax authorities, the mechanism supports more effective monitoring and faster processing of VAT returns and refunds.
The Ministry of Finance expects the new system to significantly reduce instances of tax fraud, strengthen compliance, and improve the overall effectiveness of VAT administration in the metal-scrap sector. The decision also aligns with similar reverse charge mechanisms already applied in the UAE to electronic devices, gold, and other precious metals, where it has proven successful.
Overall, the introduction of the reverse charge VAT mechanism reflects the UAE’s commitment to building a robust, transparent, and sustainable financial framework. By enhancing trust in the tax system and maintaining a competitive business environment, the measure supports long-term economic growth and reinforces the UAE’s reputation as a leading global business hub.
