UAE VAT rule change: What buyers, sellers need to know from January 2026

Dubai: If you buy or sell scrap metal in the UAE, a significant tax change is coming your way next month. From January 14, 2026, the way Value Added Tax (VAT) is handled in the scrap metal sector will change completely under a new “reverse charge” mechanism.

The Ministry of Finance announced Cabinet Decision No. 153 of 2025 on Friday, which shifts the responsibility for accounting and paying VAT from sellers to buyers in scrap metal transactions between VAT-registered businesses.

Under the current system, scrap metal suppliers charge VAT to their customers and remit it to the Federal Tax Authority (FTA). From January 14, this changes dramatically.

With the reverse charge mechanism, buyers of scrap metal will now be responsible for accounting for the VAT due on their purchases. Sellers will no longer charge VAT on these transactions.

This applies whether you’re purchasing scrap metal for resale or for processing into materials for manufacturing new products.

The new rule applies specifically to transactions between VAT-registered businesses in the scrap metal sector. If you’re registered with the FTA and deal in metal scrap – either buying for resale or for processing into new materials – you’ll need to adjust your accounting procedures.

Both suppliers and buyers must be VAT-registered for the reverse charge to apply to their transactions.

The Ministry of Finance says the new mechanism is designed to combat fraudulent practices that have plagued the scrap metal trading sector. By shifting VAT responsibility to buyers, the government aims to reduce tax fraud and improve the refund process.

The move also promotes "tax fairness and voluntary compliance," according to the ministry, whilst supporting transparency in the UAE's business environment.

Before any scrap metal transaction takes place under the new system, specific procedures must be followed:

For buyers: You must provide a written declaration to your supplier confirming that you're purchasing the scrap metal either for resale or for processing. You must also confirm that you're registered with the FTA.

For sellers: You must obtain and keep these declarations from buyers, verify that they're actually registered with the FTA, and clearly state on your invoices that the reverse charge mechanism applies to the supply.

Getting these procedures right is crucial – both parties must complete them before the date of supply.

The UAE has successfully implemented the same reverse charge mechanism in other sectors prone to VAT fraud. Electronic devices, gold, and other precious metals already operate under this system.

The government says these earlier implementations have proven effective, which is why they're now extending the approach to scrap metal trading.

Whilst the Ministry's announcement doesn't detail specific penalties, the mechanism falls under Federal Decree-Law No. 8 of 2017 on Value Added Tax and Cabinet Resolution No. 52 of 2017. Non-compliance with VAT regulations can result in penalties from the FTA.

Businesses in the scrap metal sector should ensure their accounting systems and procedures are updated before the January 14 deadline.