Global Statutory Law & Standards Insights

The Ministry of Finance (“MoF”) has issued Cabinet Decision No. 153 of 2025, introducing the reverse charge mechanism (RCM) for the trading of metal scrap between VAT-registered persons in the UAE. The Decision will be effective from 14 January 2026.

The Decision has been issued under Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, and Cabinet Decision No. 52 of 2017 (VAT Executive Regulations).

The new measure aims to: 

• Reduce VAT fraud in the metal scrap sector 
• Improve efficiency of VAT administration and refunds 
• Promote tax fairness and voluntary compliance 
• Support transparency and business confidence in the UAE

The reverse charge mechanism applies to domestic supplies of metal scrap where: 

• Both supplier and buyer are VAT-registered; and 
• The buyer intends to resell the metal scrap or use it in processing/manufacturing.

Buyer’s obligations (before supply), Provide a written declaration confirming: 

• the metal scrap is intended for resale or processing, and 
• VAT registration with the Federal Tax Authority (“FTA”). 

 Supplier’s obligations (before supply): 

• Obtain and retain the buyer’s declarations 
• Verify the buyer’s VAT registration status with the FTA
• Clearly mention on the tax invoice that “Reverse Charge Mechanism applies

The Ministry expects this mechanism to: 

• Significantly reduce tax evasion in the metal scrap sector 
• Enhance efficiency in VAT refund processing 
• Align the sector with existing RCM frameworks already applied to electronic devices, gold, and 
• other precious metals

The seller must recognise the sale as revenue in its accounting books without charging or recording output VAT. Responsibility for accounting for VAT on the transaction shifts to the buyer. For better control in books of Seller, a Seller can create a separate ledger in the Chart of Accounts as “Sales – Metal Scrap (RCM) A/c” recognizing all Sales that falls under “RCM”.

Accounting entries in the seller's books

Assume the seller supplies metal scrap valued at AED 100,000 to a VAT-registered buyer and all RCM conditions are satisfied.

Journal Entry – On Sale of Metal Scrap

Narration: Being the sale of metal scrap to a VAT-registered customer under the Reverse Charge Mechanism pursuant to Cabinet Decision No. 153 of 2025.

No output VAT liability is recorded by the seller.

Important: The seller should not classify this transaction as a zero-rated or exempt sale merely because no VAT is charged. It should be separately identifiable as a supply subject to RCM.

Article 2(1)(a) specifically provides that the supplier shall not be responsible for accounting for VAT on qualifying metal scrap supplies and shall not include the supply in its VAT return.

Accordingly:

• Do not report output VAT on the transaction.
• Do not include the RCM sale in Box 1 as an ordinary standard-rated sale.
• Do not report the transaction as a zero-rated or exempt supply.
• Maintain a separate RCM sales register for reconciliation with revenue recorded in the financial statements.

This treatment follows the specific reporting exclusion under Cabinet Decision No. 153 of 2025.

The seller should maintain a dedicated ledger such as "Sales – Metal Scrap (RCM)" and create a separate tax classification within its accounting software.

This will enable the business to recognise the full sales consideration as revenue, avoid recording output VAT on qualifying transactions, reconcile its sales ledger with its VAT return, and maintain the supporting evidence required for tax compliance.