Comparing Business Central Hosting Options: Online vs On-Premises (2026 Guide)

Before you sign a Business Central contract, one decision shapes everything that follows: where will it run?

Microsoft offers Business Central in two officially supported deployment models, online (SaaS) and on-premises: and on-premises itself can be hosted on your own hardware, on your own Azure VMs, or by a partner. Each path changes what you pay, what you control, what you're responsible for, and, critically, which features you get.

This post compares the three real-world hosting paths customers choose in 2026, using Microsoft's own documentation as the single source of truth. If you've read our earlier posts on hosting Business Central on Azure and on-premises deployment, this is the decision-framework piece that ties them together.

Microsoft's official deployment taxonomy

Microsoft's Business Central documentation recognises two deployment types:

Business Central online: the multitenant SaaS service Microsoft runs on Azure
Business Central on-premises: the self-managed product customers or partners install themselves

Reference: Deployment of Dynamics 365 Business Central: Microsoft Learn

In practice, on-premises splits into three ways customers actually host it:

Hosting path

Who runs the infrastructure

Who runs Business Central

Online (SaaS)

Microsoft

On-premises in customer data centre

Customer IT

On-premises on Azure VMs (self- or partner-hosted)

Customer / Partner (on Azure)

Customer / Partner

The critical point customers often miss: Business Central running on Azure VMs is still the on-premises product. It is subject to the same licensing model, the same feature gaps, and the same update process as on-premises on bare metal. Hosting location changes operational responsibility, it does not change what Microsoft considers "online."

Option 1: Business Central online (SaaS)

What Microsoft provides

Business Central online is delivered as a multitenant cloud service built on Azure. Microsoft's service overview describes the platform as running across 21 Microsoft Azure regions and serving customers in more than 170 countries and regions, with new countries added quarterly.

Under the hood, Microsoft runs the service on Azure SQL Database, Azure Functions, Virtual Machine Scale Sets, Azure SignalR, Key Vault, Traffic Manager, and other Azure-native services. Customers never see or manage this infrastructure.

Reference

Service overview for Business Central online: Microsoft Learn

Service level agreement

Microsoft provides a financially-backed 99.9% monthly uptime SLA for paid production environments of Business Central online. If the service falls below that level in a given month, customers may be entitled to service credits under the Microsoft Online Services SLA.

The underlying Azure SQL Database runs at 99.99% availability. Credits are applied against future subscription fees, not compensation for operational impact.

References

Backups and business continuity

Automatic point-in-time backups of Azure SQL Database, retained for 28 days
Admins can restore production or sandbox environments to any point in those 28 days via the Business Central admin center
Deleted environments can be recovered by admins within 14 days of deletion
Geo-redundant backups protect against regional outages
Azure availability zones provide intra-region resilience for paid production environments

Updates

Business Central online follows the Microsoft Modern Lifecycle Policy:

Major updates twice a year (April and October release waves)
Minor updates monthly
Critical fixes rolled out continuously after validation in Microsoft's staging environment
Administrators set a maintenance window in the admin center and can schedule their update within a five-month update period

Pricing (list, from Microsoft.com)

As of the pricing displayed on Microsoft's Business Central pricing page:

License

US list price

Business Central Essentials

$80 user/month, paid yearly

Business Central Premium

$110 user/month, paid yearly

Business Central Team Members

$8 user/month, paid yearly

All full-user licenses include unlimited users, multiple environments, multiple companies, and customization/extensibility at no extra cost per that page. Prices vary by region.

Reference

Dynamics 365 Business Central Pricing: Microsoft

Best for

Customers who want predictable subscription costs and no infrastructure responsibility
Organisations that benefit from Copilot, Teams integration, Shopify, and tight M365 integration
SMBs that don't have dedicated SQL/Windows Server IT capability
Projects where speed to go-live matters

Option 2: Business Central on-premises (customer-managed)

What the customer provides

In an on-premises deployment, the customer (or partner) installs and runs everything: the Business Central Server (NST), SQL Server, the web client, and any network and authentication infrastructure.

Business Central Setup lets you install components across multiple computers, use predefined or custom installation profiles, save configuration files for repeatable deployments, and preconfigure components before install.

Reference

Deployment of Dynamics 365 Business Central: Microsoft Learn

No SLA from Microsoft

There is no financially-backed uptime SLA for on-premises deployments. Uptime, patching, failover, disaster recovery, and backup are the responsibility of the customer (or their hosting partner). Microsoft's Online Services SLA explicitly does not apply to on-premises software that is part of any service.

Updates

Microsoft releases cumulative updates roughly monthly for supported on-premises versions. Each cumulative update contains all hotfixes and regulatory features released since the previous update. The current major version line in production is 2025 release wave 2 (BC27), with 2026 release wave 1 (BC28) now generally available.

All updates that Microsoft applies to Business Central online are also shipped with the subsequent cumulative update for Business Central on-premises, but on a delayed cadence, and the customer must plan and execute each update themselves.

References

Features that are NOT available on-premises (Microsoft's official list)

This is the single most important comparison point, and it's the one most buyers don't see until after they've signed.

Per Microsoft's official documentation, the following are not available in any on-premises deployment and have no plans to be added:

Microsoft Copilot in Business Central: including marketing text suggestions, bank reconciliation assist, and all AI agents
Business Central app for Microsoft Teams: the Teams integration does not connect to on-premises
Share to Teams (copying page links into Teams conversations)
Shopify connector: online tenants only
Default Power BI reports (automatic deployment and configuration)
Bulk Invoicing from Microsoft Bookings
Creating workflows from Power Automate templates
Sandbox environments: the container sandbox used for extension development cannot connect to an on-premises deployment
In-product search extending to learn.microsoft.com content
Late Payment Prediction
Company Hub (managing work across multiple companies)
Inviting an external accountant

Features that require specific extra setup on-premises

These features require specific extra setup (typically Microsoft Entra ID authentication plus Azure subscriptions):

Excel add-in read/write and Excel financial reports (requires Entra ID)
Built-in Power BI reports and charts (requires Entra ID)
Built-in Power Automate management (requires Entra ID)
Outlook add-in (requires Entra ID with Exchange Online, or Entra ID/NAVUserPassword with Exchange Server)
Word coversheets for contact management (requires Entra ID)
Standard REST API (cannot be reached via the common https://api.businesscentral.dynamics.com endpoint, must connect directly to on-premises)
Sales and Inventory Forecast (requires Azure Machine Learning)
Image Analyzer (requires Azure Computer Vision)
Cortana Intelligence in Cash Flow Forecast (requires Azure Machine Learning)

Reference

Features not implemented in on-premises deployments of Dynamics 365 Business Central: Microsoft Learn

Best for

Data residency / sovereignty requirements that cannot be met by Microsoft's available Azure regions
Sovereign or government cloud scenarios (on-premises is currently the only option)
Heavily customised NAV upgrades where the modernisation path to SaaS would be too disruptive
Customers with specialised hardware integrations or offline operational requirements

Option 3: On-premises hosted on Azure (customer or partner managed)

What it really is

This is Business Central on-premises installed on Azure Virtual Machines: sometimes in the customer's Azure subscription, sometimes in a partner-managed subscription. From Microsoft's product perspective, this is still an on-premises deployment, it is licensed, updated, and feature-restricted identically to any other on-premises install.

What changes is operational, not functional:

You get Azure's elastic infrastructure (VM sizing, storage tiers, geo-redundant backups you configure yourself)
You still run Business Central Server, SQL Server, and the Web Server Components yourself
You still patch the OS, SQL Server, and Business Central yourself
You still have no Microsoft SLA on Business Central itself (though the underlying Azure VMs and Azure SQL Managed Instance have their own Azure SLAs)

For architecture and component detail, see our Hosting Business Central on Azure post.

Best for

NAV migrations that need a cloud-ready lift-and-shift before a future SaaS move
Customers who want modern infrastructure elasticity but require on-premises feature boundaries (custom C/AL code, locked platform version, etc.)
Regulated industries that require infrastructure-level control but accept Microsoft's cloud as the hosting substrate

Side-by-side comparison

Dimension

Online (SaaS)

On-premises (customer DC)

On-premises on Azure VMs

Who manages the infrastructure

Microsoft

Customer

Customer / Partner

Who manages Business Central

Microsoft

Customer

Customer / Partner

SLA on Business Central

99.9% financially-backed

None from Microsoft

None from Microsoft on BC itself

Database

Azure SQL Database (99.99%)

SQL Server (customer-run)

SQL Server on VM or Azure SQL MI

Automatic backups

28 days point-in-time, built in

Customer-managed

Deleted environment recovery

14 days via admin center

Customer-managed

Update cadence

2 major/year + monthly minor

Monthly cumulative updates to apply

Update application

Microsoft applies in your window

Customer plans and executes

Copilot

Yes

Teams app / Share to Teams

Yes

Shopify connector

Yes

Power BI auto-deployed reports

Yes

Power Automate workflow creation

Yes

Sandbox (for extension dev)

Yes

REST API at common endpoint

Yes

Direct connection only

Licensing model

Subscription (per user/month)

Subscription or perpetual + Enhancement Plan

Subscription or perpetual + EP + Azure costs

Data residency control

Chosen Azure region per environment

Full customer control

Customer chooses Azure region

Customization depth

AL extensions only (no base-app changes)

AL extensions (base-app changes possible but discouraged)

The five questions that decide it

After scoping dozens of deployments, these are the five questions whose answers usually determine the right hosting path:

1. Do you need Copilot, Teams integration, or Shopify?

If yes → Online is the only option. None of these are coming to on-premises.

2. Are there legal or contractual requirements that your data cannot leave a specific geography Microsoft doesn't serve as an Azure region?

If yes → On-premises (in your data centre) is likely the only path. Sovereign cloud scenarios are explicitly on-premises today.

3. Do you have specialised hardware, offline requirements, or C/AL customisations that cannot be converted to AL extensions in a reasonable timeframe?

If yes → On-premises, with a clear modernisation roadmap.

4. Do you have the IT capability (or partner) to run Windows Server, SQL Server, patching, backup, and DR 24/7?

If no → Online. Self-hosting without this capability is where most on-premises incidents start.

5. Is this a NAV upgrade?

This is the hardest case. On-premises is often the staging step; online is usually the destination. The right answer is a two-phase migration plan, not a single deployment choice.

Common migration paths we see

NAV on-premises → BC on-premises (same DC) → BC online: the classic modernisation ladder, typically 12-24 months
NAV on-premises → BC on-premises on Azure VMs → BC online: accelerates the infrastructure shift before the SaaS cutover
Greenfield SMB → BC online directly: fastest path, lowest risk, most common choice in 2026
BC on-premises → BC online via Microsoft's cloud migration tool: supported migration tooling exists specifically for this

Reference

Migrating on-premises data to Business Central online: Microsoft Learn

The honest bottom line

For the majority of new 2026 deployments, Business Central online is the right answer. Microsoft invests almost entirely in the online service; every major capability added since 2023: Copilot, AI agents, Shopify, tighter Teams and Power Platform integration, lives only there. The feature gap between online and on-premises is widening, not closing.

On-premises remains the correct choice when data residency, sovereign cloud requirements, or legitimate customisation constraints make it the only path. "We want more control" on its own is rarely sufficient justification once the hidden operational cost of self-hosting is properly modelled.

On-premises on Azure VMs is the sensible middle step for organisations that know they will move to online eventually but cannot make the jump in one phase.

Official Microsoft references

Deployment of Dynamics 365 Business Central: Microsoft Learn
Service overview for Business Central online: Microsoft Learn
Features not implemented in on-premises deployments: Microsoft Learn
Service Compliance and SLA: Microsoft Learn
Service Level Agreements for Microsoft Online Services: Microsoft Licensing
Business Central Pricing: Microsoft
Installing a Business Central update: Microsoft Learn
Released Updates for Business Central 2025 Release Wave 2: Microsoft Support
Migrating on-premises data to Business Central online: Microsoft Learn

Disclaimer: Information sourced from Microsoft Learn, Microsoft Support and microsoft.com as of April 2026. Features, pricing and service details are subject to change. This material is for informational purposes only and does not constitute official Microsoft guidance. Consult a qualified Microsoft partner before making deployment decisions. INFOC is an independent consultancy and is not affiliated with Microsoft Corporation. All trademarks belong to their respective owners.