Introduction
Cabinet Decision No. 153 of 2025 introduces a targeted Reverse Charge Mechanism applicable to the local supply of Metal Scrap between VAT registered persons in the UAE. The Decision was published in the Official Gazette on 26 November 2025 and comes into effect on 14 January 2026, being sixty days from the date of publication.
The Decision represents a focused intervention within the UAE VAT regime. It does not alter the structure of the VAT system more generally but extends an existing compliance mechanism to a specific category of domestic supplies that is recognised internationally as presenting elevated VAT compliance risk.
What is the Reverse Charge Mechanism?
Under the UAE VAT regime, the Reverse Charge Mechanism (“RCM”) a compliance mechanism under which the shifts the responsibility for accounting for VAT from the supplier to the recipient of goods or services. Instead of the supplier charging VAT on the invoice and remitting it to the Federal Tax Authority, the recipient reports the VAT as output tax in its VAT return and, subject to standard recovery rules, may claim the same amount as input tax.
The RCM is typically applied where the nature of the sector or the structure of the supply chain presents an increased risk of VAT leakage. By shifting the VAT accounting obligation to the recipient, who is usually a VAT registered and operationally established business, the mechanism enhances collection efficiency while reducing compliance and cash flow burdens on suppliers.
Reverse Charge Mechanism as an Established Feature of UAE VAT
The RCM has been a core feature of the UAE VAT system since its inception and already applies in a number of prescribed scenarios. These include certain cross-border transactions and specific domestic supplies identified as posing a higher risk of non-compliance or fraud.
Over time, the UAE has adopted a targeted and incremental approach to expanding the RCM to domestic sectors. Cabinet Decision No. 153 of 2025 should therefore be understood as a continuation of this legislative approach, extending an established compliance tool to the local supply of Metal Scrap between VAT registered persons rather than introducing a new VAT concept.
Scope and Key Definitions
For the purposes of the Decision, Metal Scrap refers to ferrous or non-ferrous metal waste that has commercial value and remains useable after Processing. Processing means the procedure that converts Metal Scrap into materials suitable for manufacturing new products whether through repair, recycling, or other methods.
These definitions are crucial for determining whether a particular supply falls within the scope of the RCM introduced by the Decision.
Application of the Reverse Charge Mechanism to Metal Scrap
Under Article 2 of the Decision, the RCM applies to local supplies of Metal Scrap where the recipient is registered for VAT and intends to reuse, recycle or otherwise process the Metal Scrap.
Where the conditions are met, the supplier is not required to account for VAT on the supply and should not include the value of the supply in its VAT return. Instead, the recipient is responsible for accounting for the VAT due on the supply and for fulfilling all related VAT obligations.
This shift in VAT accounting responsibility is intended to reduce the risk of VAT being charged but not remitted, while ensuring that VAT is properly accounted for within the supply chain.
Exclusions from the Reverse Charge Mechanism
The RCM does not apply to supplies of Metal Scrap that are subject to zero rated VAT under UAE VAT Law. Where a supply qualifies for zero rating, the supplier remains required to apply the standard VAT treatment applicable to zero rated supplies, and the RCM does not apply.
Conditions for Applying the Reverse Charge Mechanism
The application of the RCM is conditional and requires compliance by both the supplier and the recipient prior to the date of supply.
The recipient must provide the supplier with a written declaration confirming its intention to reuse, recycle or otherwise process the Metal Scrap and confirming that it is registered for VAT with the Federal Tax Authority.
The supplier must receive and retain the written declaration, verify the VAT registration status of the recipient using the methods prescribed by the Federal Tax Authority and issue an invoice that clearly indicates that the RCM applies.
Where these conditions are not met, the RCM does not apply, and the supplier remains required to charge VAT at the standard rate.
Consequences of Non-Compliance
Where the recipient fails to provide the required declarations or where the supplier fails to verify the recipient’s VAT registration status, the RCM will not apply. In such cases, the supplier is required to account for VAT in the normal manner.
In addition, where the required declarations are not provided, the recipient may not treat the Metal Scrap as being used or intended to be used for the purposes of input tax recovery under Article 54 of the VAT Law. This underscores the importance of strict compliance with the documentary requirements set out in the Decision.
Implementing Measures and Further Guidance
The Decision authorises the Minister of Finance to issue further implementing decisions. In practice, additional guidance from the Federal Tax Authority is expected to clarify documentation standards, verification procedures and audit expectations.
Businesses should monitor developments closely to ensure that their compliance processes remain aligned with administrative practice.
Practical Implications for Businesses
Businesses engaged in the supply, purchase or Processing of Metal Scrap should review their existing supply chains, contractual arrangements and invoicing processes to identify transactions that fall within the scope of the RCM.
Attention should be given to internal controls for obtaining written declarations, verifying VAT registration status and correctly reflecting the application of the RCM in VAT returns.
Conclusion
Cabinet Decision No. 153 of 2025 introduces a targeted extension of the RCM to local supplies of Metal Scrap between VAT registered persons. The Decision builds on an established feature of the UAE VAT framework and reflects a measured policy response to sector specific compliance risks.
While the Decision does not alter the fundamental structure of the VAT system, it introduces new compliance obligations for affected businesses. Early preparation and careful implementation will be essential to ensure compliance once the Decision comes into effect.
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For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.
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