Dubai is the commercial centre of the United Arab Emirates (UAE) located on the southern shore of the Arabian Gulf. It is the second largest of the seven Emirates which make up the UAE with Abu Dhabi being the capital. The seven Emirates were British protectorates between 1892 and 1971. On the British withdrawal, the Emirates linked to create the federation of the UAE.

The discovery of oil in 1966 transformed the UAE by allowing the development of the economic and social infrastructure. In Dubai, much of the development was the vision of the late Ruler HH Sheikh Rashid Prince Sayed Al Maktoum who ensured that Dubai’s oil revenues were deployed to maximum effect.

Although Dubai’s prosperity is largely based on oil, its economy is much more diverse than most others in the region. Trade, commerce, construction, finance and other service industries are all important.

The manufacturing industry is becoming a major force in the economy. Dubai Aluminium Company is the largest industrial operation in the Emirates and aluminium accounts for around 40 per cent of non-oil exports.

The federal and individual Emirate governments are seeking to reduce dependence on petroleum by diversifying the economies of the oil producing Emirates to establish a firm economic base for the country as a whole. 65 per cent of GDP is now from sectors other than the sale of hydrocarbons.

The legal system of the UAE allows only Emirate nationals to appear in the local courts. But there are several well-known law firms here acting as legal consultants and advising on UAE laws. The legal market in Dubai has been dominated by UK firms, though US firms also now have a presence. Many international companies run their entire Middle Eastern, North African and Indian sub-continental operations from Dubai. Virtual absence of taxation, a co-ordinated infrastructure, excellent communication services, a well-structured financial sector with virtually no exchange controls and a prime strategic location between the East and the West are powerful incentives to set up and do business here.

The primary legislation governing business in the UAE is the Commercial Companies Law. Under this law, foreigners can own only 49 per cent of locally incorporated entities but can own 100 per cent of foreign companies. However, they would be required to appoint a UAE national, service agent or sponsor. A local sponsor would have no ownership but would usually be paid an annual fee for assistance with labour and immigration matters.

Foreign companies and expatriates are not permitted to own commercial or residential property. This right is restricted to only UAE nationals and Gulf Cooperation Council nationals (subject to special approval).

Two of the latest trading initiatives in Dubai are the new stock exchange, Dubai Financial Market (DFM) and Dubai Internet City (DIC). DFM is the first stock exchange in the UAE, though the Abu Dhabi Bourse is scheduled to open imminently. DFM opened in March with 12 listed companies and 15 licensed brokers. The market has not long opened to foreign participation.

DIC, due to open in October, is the brainchild of Sheikh Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai and the UAE Defence Minister. It is to be a dedicated free zone for IT and e-commerce. DIC has licensed over 100 companies and attracted $250m (£165m) of investment. Companies include Microsoft, Oracle, Mastercard and Compaq. All this activity has created a great deal of work for lawyers in the region.

The UAE became a full member of the World Trade Organisation in 1996 and has agreed to comply with WTO rules between 2000 and 2005. It is anticipated that the legal structure will be overhauled to meet the requirements of the business community and international standards.

The lack of formal court reporting and the fact that there is no binding precedent in the UAE make it a challenge to practise UAE law and to interpret it. But in this most commercial of cities any legal solution that takes full account of the commercial realities is assured a favourable reception.

Martin Kitchen will be managing partner at Denton Wilde Sapte’s Dubai office from 17 August