VAT reverse charge mechanism in the scrap industry

Usually, the seller is liable for value added tax. The VAT reverse charge mechanism applied in the scrap industry means that VAT liability for certain scrap metal and metal waste is carried by the buyer rather than the seller. This means that the buyer must calculate and pay the VAT. The VAT rate for scrap metal and metal waste is 24%. In other words, the value added tax must be paid according to the general tax rate.

When is the reverse charge mechanism applied?

The buyer is always liable for VAT when all the following conditions are met:

  1. The goods are scrap metal or metal waste.
  2. Both the seller and the buyer are companies and registered for VAT.
  3. Scrap metal or metal waste is sold in Finland, i.e. the seller hands goods over to the buyer in Finland or their transport to the buyer begins in Finland.

The buyer also pays the VAT if the seller sells scrap metal only casually. In other words, the seller does not need to be a scrap company.

It is the seller’s responsibility to examine whether the conditions of the reverse charge mechanism are met, i.e. whether the buyer or the seller is liable for VAT.

What information must the invoice include?

Although the buyer must file and pay VAT on the scrap metal or metal waste sold, the seller must issue an invoice to the buyer. The invoice must include the price without VAT and a mention of the reverse charge mechanism. The buyer can prepare the invoice on behalf of the seller if the seller and buyer so agree and the seller accepts the invoice. However, the seller is always responsible for the invoice and its accuracy.

Make sure the invoice contains the following information:

  • the normally required invoice entries (excluding the VAT rate and the amount of VAT)
  • the buyer's VAT number – for domestic sales transactions, it is the Business ID of the Finnish buyer
  • a text saying that the buyer must file and pay VAT (”reverse charge”)
  • a reason for the buyer’s VAT liability − e.g. reference to § 8 d of the Value Added Tax Act
  • an indication of "self-billing" if the buyer prepares the invoice.

File the details on the VAT return

Report the sales and purchases of scrap on the VAT return.

  • Buyer: Report the scrap metal and metal waste you have bought if you are liable for the VAT based on the reverse charge mechanism. Report the total purchases under “Purchases of construction services and scrap metal” on the VAT return. Calculate the amount of VAT when the VAT rate is 24% and enter it under “Tax on purchases of construction services and scrap metal”. If the VAT on the purchase is deductible, report it under "Tax deductible for the tax period".
  • Seller: Even if the buyer is liable for VAT based on the reverse charge mechanism, report the total sum of the scrap metal or metal waste you have sold under “Sales of construction services and scrap metal” on the VAT return.

Read more about filing and paying VAT.

Is reversed VAT deductible?

Reverse charge mechanism has no impact on the right to deduct VAT on purchases.

  • Buyer: If you have bought scrap metal or metal waste for your taxable business, you can deduct the VAT.
  • Seller: If you have made purchases relating to the sale of scrap metal or metal waste, you can deduct the VAT in the usual manner, even if the buyer rather than the seller is liable for the VAT.