"Smile," urges the roadside billboard, "You're in Sharjah."

The fastest-growing of the United Arab Emirates' seven states, it has much to make the foreign investor merry.

There are no taxes, no labor unions, no foreign-exchange controls and, unlike elsewhere in the gulf, no obligation for a foreign company to take on a local partner.

The state offers free counseling to help foreign businessmen succeed in Sharjah, and leases them building land to nominal rents.

"Sharjah isn't handout, "it only sounds that way."

The open-door policy is part of Sheikh Sultan bin Muhammed Qasimi's plan to insure the long-term prosperity of his 25,000 subjects by turning Sharjah, which earns only $50 million a year from oil, into a service center for its oil-rich Arab neighbors.

"All we have is a central location and a different outlook," says one government official.

Sharjah, at the crossroads of the United Arab Emirates road network, has a natural deep-sea harbor on its eastern coast, fine mountain and coastal scenery on the Gulf of Oman and the highest number of university graduates in the emirates.

At 38, Sheikh Qasimi is the second-youngest and one of the best-educated rulers in the Gulf.

He is also one of the most committed of the seven emirs to the success of their five-year-old union.

Sharjah was the first of the seven states to run down its own flag and disband its militis, a move that not only save money but won Sheikh Qasimi new credits from Abu Dhabi, the political and economic powerhouse of the federation.

U. S. officals say that Sheikh Zaid bin Sultan Nahayyan, ruler of Abu Dhabi and president of the federation, sees Sharjah as a counterweight to the union's second-largest state, Dubai, and is therefore likely to keep pumping money into Sharjah to insure its growth and maintain its allegance.

Money is also pouring into Sharjah from Saudi Arabia and Kuwait.

To insure maximum benefit from its assets Sharjah has commissioned foreign experts to run its key enterprises.

The American transport company Seatrain manages Sharjah's ports. Its airport is run by Flughafen Frankfurt A. G., the operators of Frankfurt airport.

Between them, they hope to turn Sharjah into the gateway to the Gulf.

"We are concentrating on doing a few things very well," says Bart A. Paff, the ruler's American economic adviser.

Besides freight-handling, this includes banking, light industry, tourism and education.

Sharjah operates the only fully equipped container terminal in the Gulf, and the sole Category 2 cargo airport and internationally accredited English-speaking prep school in the emirates.

Facilities under construction include a mini-"Wall Street" financial complex, a new port and more than a dozen luxury hotels.

Sharjah has already attracted the regional headquarters of several large American firms, including Honeywell, 3M and Armco Steel, and expects more.

Westinghouse in currently studying four possible projects in the emirate.

"I have had managers from eight American firms in here in the past two days," said J.C. Green, American manager of the Sharjah branch of the National Bank of Dubai, recently.

"There are an awful lot of opportunities here for Americans," says Paff, who came here three years ago with his wife and large collie dog to help plan Sharjah's development.

"But we don't want to become just a tax haven," says Paff, 38. "We don't want a lot of brass plates and post office boxes. We want major international corporations that can stand on their own feet and contribute something to the economy."

From the window of Paff's modest, green-carpeted office on the outskirts of what less than five years ago was a mud-brick village, Sharjah City resembles an immense building site: dotted with cranes and bulldozers, littered with construction debris and dominated by the 23 rising 11-story blocks of its planned financial center.

To prevent the city from becoming a concrete jungle, like those of some of its neghbors, buildings are to be interspersed with parks.

Hotel construction in Sharjah is unmatched by any other emirate. Under construction on its western Gulf coast are a 278-room Holiday Inn, a 380-room Intercontinental and an elite Marbella Club, was to be run by Prince Alphonso de Hohenlohe, who runs a famous club by the same name in Spain.

On its eastern coast on the Indian Ocean, Sharjah is building a new-port at Khor Fahkan. It is to be able to handle the largest container vessels afloat and cut three days' sailing time off the voyage through the congested Straits of Hormuz to Gulf ports.

"At $2,500-a-day big container ship running costs, that's a saving of $7,500," says Seatrain vice president William E. Trautman.