Starting 14 January 2026, UAE scrap metal companies will face major changes in tax procedures that affect both suppliers and buyers. Cabinet Decision No. 153 of 2025 introduces a reverse-charge VAT system for transactions between VAT-registered businesses, changing how VAT is calculated. Right now, suppliers charge VAT to clients and send it to the Federal Tax Authority, but from January, buyers will take on this responsibility.
Under the new mechanism, scrap metal buyers will account for VAT on their purchases themselves, while sellers will no longer charge VAT on invoices. The change applies to both the resale of scrap metal and its processing into materials used to manufacture new products, covering nearly all commercial operations within the sector. The impact of such regulatory shifts on the emirate’s business environment can be compared to that of a Dubai real estate update, which reflects broader government economic policy aimed at increasing transparency and regulatory oversight.
New rules for VAT-registered companies
The reverse charge mechanism applies exclusively to transactions between companies registered for VAT, making verification of each counterparty’s status essential. If a company is registered with the Federal Tax Authority and purchases scrap metal for resale or processing, it will need to revise accounting procedures and internal documentation workflows. Both parties to the transaction must be VAT-registered; otherwise, the reverse charge mechanism will not apply to that specific deal. The Ministry of Finance says this reform aims to fight fraud in the scrap metal trade, where tax evasion has been a big problem. By shifting VAT responsibility to buyers, the government hopes to reduce fraud and make refunds easier, leading to a more transparent system. Authorities believe this approach supports tax fairness and encourages companies to comply voluntarily.
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Mandatory documentation before each transaction
Each scrap metal transaction completed after 14 January must comply with specific procedures prior to delivery, adding an additional administrative layer. Buyers are required to provide suppliers with a written declaration confirming that the scrap metal is being purchased for resale or processing, along with proof of VAT registration. The seller’s obligations include three key actions:
- obtaining and retaining written declarations from buyers
- verifying the buyer’s VAT registration status
- clearly stating the application of the reverse charge mechanism on invoices
Compliance with these requirements is essential, and all procedures must be completed before delivery. Failure to comply may result in the transaction being considered non-compliant with tax legislation.
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Expansion of a proven anti-fraud approach
The government has already implemented the reverse charge system in other areas at risk of tax fraud, such as electronics, gold, and precious metals. These sectors have used this system for years, helping reduce tax evasion and boost revenue. Because of these results, authorities are now applying the same approach to scrap metal trading, where unregulated activity needed quick action. These systemic changes in tax regulation run in parallel with developments in other areas of the economy, where a Dubai rental market analysis based on real data illustrates how government policy influences business activity and the broader investment climate.
The Ministry hasn’t provided details on penalties for noncompliance with the rules, but the system is covered by Federal Law No. 8 of 2017 on VAT and Cabinet Decision No. 52 of 2017. Breaking VAT rules can lead to serious fines from the Federal Tax Authority. Scrap metal companies should update their accounting systems and train staff before 14 January to avoid issues when the new rules take effect.
