A statement issued on behalf of Sheikh Ahmed bin Saeed al-Maktoum named no teams, although a spokesman said there were probably three candidates.
There has been media speculation recently about privately-owned Jordan, which is based at Silverstone, as well as Ford's plans for Jaguar.
High-flying BAR are owned by tobacco giant British American Tobacco (BAT), who have said they want to sell their stake in two years' time. Struggling Minardi could also be a possible target.
"The Emirate of Dubai is pleased to announce that following extensive planning and development, Grand Prix Investments (GPI) is in negotiations to acquire, operate and manage a Formula One team, to be headquartered in Dubai," the statement said.
"I am delighted to reconfirm my support to GPI and the purchase of a Formula One team, which will then become known as the 'official' Dubai team," Maktoum was quoted as saying.
"This is an exciting time for Dubai and the United Arab Emirates as the team will compete with the very best in motorsport and assist in promoting the country on a global basis."
New entrants to Formula One must pay the governing body a $50 million bond, but that does not apply to buying an existing team, which would be a far cheaper option than the cost of setting up a factory from scratch.
A spokesman for Belgravia Group, who are advising Maktoum's GPI, said a number of teams had been assessed and approached with a deal hoped for by the end of the season.
"Europe is the base for Formula One and, while the team will be headquartered in Dubai, it is very much going to keep its European base."
"The factory, wherever it is, will remain where it is."
Team boss Eddie Jordan would neither rule out nor confirm a move for his team.
"It is clearly not unusual for Jordan to be linked to all sorts of speculation and such like," he told Reuters. "I'm sure the royal family are speaking to a number of different teams and we really have no comment to make at this point."
The team is majority-owned by Jordan's family but the Irish entrepreneur said he was willing to "look at anything to get Jordan back to the top and fighting for wins and a championship".
"But of course it would have Eddie Jordan involved in it because it's my life and my passion."
The Middle East this year hosted a grand prix for the first time in the Gulf kingdom of Bahrain.
Nearby Dubai is aiming to become non-dependent on oil revenues and is diversifying into tourism and commerce in a bid to become the 'Monaco of the Middle East."
"If you have a race, it's once a year," said the spokesman. "But by having a team Dubai will have a presence all year round."
He said Sheikh Maktoum, president of Dubai's civil aviation, was committed to a structured involvement in Formula One: "It's not just about cheque books, it's about building a proper business."