Mandatory VAT reverse charge on waste and scrap metal: the points to watch

The 2024 Finance Act (Loi de Finances) created an optional VAT (TVA) reverse-charge regime for purchases from suppliers who are outside the scope of VAT or exempt. The Finance Act 2026 made it mandatory for one category of business: industrial processors that buy new industrial waste and scrap metal and other recovered materials. After eight months in force, here are the points that raise the most questions.

How it works

Sales of waste and recovered materials are, in principle, exempt from VAT without the right to deduct (article 91-I-C-5° of the General Tax Code, CGI). Collectors and scrap dealers therefore do not charge VAT. The new paragraph II of article 125 quinquies requires the industrial buyer to:

1. declare the amount of its purchases excluding tax on its own VAT return, for the period in which it pays;
2. calculate the corresponding VAT;
3. deduct it on the same return, under the normal conditions.

These businesses no longer come under the optional regime in paragraph I: for these purchases, the reverse charge is mandatory.

Why this obligation?

The recycling sector is largely informal. Making the industrial buyer, the most structured link in the chain, apply the reverse charge makes it possible to trace flows and get a clearer picture of the volumes bought. It also helps the industrial buyer document its raw material purchases.

The key issue: businesses in a VAT credit position

If the industrial buyer is in a net payable VAT position, the reverse charge is neutral: the self-accounted VAT is declared as output tax and deducted on the same return.

If it is in a VAT credit position, which is common for exporters and businesses that are investing, it must pay the self-accounted VAT with its credit return. The Directorate General of Taxes (DGI) illustrates this in DGI circular (note circulaire) No. 737: a June 2026 return showing a credit is accompanied by payment of the self-accounted VAT.

Worked example: an industrial business collects MAD 100,000 of VAT on its sales for the month and deducts MAD 140,000 on its other purchases. It buys MAD 250,000 of scrap metal.

• Self-accounted VAT: 250,000 × 20% = MAD 50,000, paid with the return.
• Total deductible VAT: 140,000 + 50,000 = MAD 190,000.
• Credit carried forward: 190,000 − 100,000 = MAD 90,000.

The business pays out MAD 50,000 while its VAT credit grows. For a business that is structurally in credit, the regime creates a cash requirement that has to be financed until the credit is offset or refunded under the conditions of the CGI.

Points to watch

• What your business does: the rule covers industrial processors. A dealer that resells scrap as it is remains under the optional regime.
• What the materials are: new industrial waste (production offcuts) and scrap metal and recovered materials. If there is any doubt about a product, it needs to be analysed case by case.
• Documentation: purchase vouchers, supplier identification, weighbridge records, proof of payment. These documents will support your deduction in an audit.
• Timing: the VAT is declared for the month or quarter in which you pay.
• Partial exemption: businesses that also carry on exempt activities must apply their deduction pro rata.

Good practice

1. Set up dedicated ledger accounts for self-accounted VAT, both output and input.
2. Reconcile purchases of recovered materials with the amounts declared each month.
3. Build the cash impact into your budget and follow your VAT credit refund claims closely.
4. Review your purchasing terms with suppliers, particularly the supporting documents they must provide.

Our accounting and tax advisory teams help industrial businesses report these purchases and manage their VAT credit. To discuss your situation, get in touch.