Microsoft will begin processing data from its generative AI tool 365 Copilot within UAE borders from early 2026, a move expected to significantly accelerate artificial intelligence technology use across government bodies and highly regulated industries.
The capability, which will be available only to qualified organisations, will be hosted in Microsoft’s cloud data centres in Dubai and Abu Dhabi, ensuring sensitive information remains under local jurisdiction.
Microsoft said the move will allow customers to “harness the transformative power of AI with confidence” by enabling productivity and automation gains.
Amr Kamel, general manager of Microsoft in the UAE, called it “a pivotal moment”, saying the decision will not only speed up adoption across the public sector but also ensure that Copilot data remains within national borders and aligned with the country’s digital strategy.
Industry experts say the change could significantly boost AI adoption in the region.
“It’s a pivotal move that ensures a powerful tool like Copilot can be utilised by even heavily regulated organisations without compromising on data sovereignty or regulatory compliance,” said Yasser Shawky, vice president for emerging markets at Informatica.
Mr Shawky told The National the move will also give organisations access to a secure, enterprise-grade option versus the unregulated or “shadow” AI tools that often pose significant security and compliance risks.
The announcement comes as the UAE continues to position itself as a global hub for AI, backed by policies such as the National Artificial Intelligence Strategy 2031, the Dubai Universal Blueprint for AI and the appointment of chief AI executives across ministries.
These efforts are part of a wider government strategy to promote responsible AI use while prioritising security, sovereignty and regulatory alignment.
For many organisations, particularly in sectors such as finance, health care, telecoms and energy, strict data residency rules have been a significant barrier to adopting generative AI.
“Local data hosting is one of the compliance mandates of the UAE’s Cybersecurity Council, which requires certain sectors, such as government, banking, telecoms and energy, to process and store data within national borders,” Mr Shawky said.
Sensitive information often cannot legally be processed or stored abroad, making cloud-based AI tools unusable for critical operations.
More than 40 per cent of AI-related data breaches will stem from cross-border misuse of generative AI by 2027, US research firm Gartner says.
Hoda Al Khzaimi, national expert on advanced sciences and future economy at the UAE Presidential Programme, said Microsoft's decision “operationalises the UAE’s digital sovereignty mandate, translating policy into infrastructure".
She added that by enabling in-country processing within Tier IV certified Microsoft cloud regions in Dubai and Abu Dhabi, the UAE gains control over data residency, inference pipelines and model-to-data interaction telemetry.
Microsoft’s decision to host and process Copilot data domestically in the UAE reflects a growing global trend towards keeping sensitive AI workloads closer to home.
Beyond compliance, the shift is about trust. If organisations know their data remains within UAE borders, they are more likely to experiment with AI, integrate it into workflows, a key step for broader digital transformation.
“When data and computing power are hosted locally, AI systems can respond faster, offering smoother, more efficient interactions,” Mr Shawky said.
Local infrastructure also creates a stronger foundation for innovation, giving start-ups, developers and research institutions the environment they need to experiment, build and deploy new AI solutions within the UAE ecosystem.
Ashraf El Zarka, regional vice president and managing director for the Middle East, Africa and Pakistan at UiPath, said that trust has become “non-negotiable” in the AI economy.
He said “data sovereignty is the linchpin for cloud and AI adoption” in the UAE, particularly in sectors such as finance, healthcare and government.
When secure, local infrastructure is in place, “adoption accelerates dramatically, especially in sectors that require both performance and oversight", he added.
Sovereign processing is key to realising the UAE’s AI economic ambitions, Ms Al Khzaimi said. The UAE’s AI contribution to GDP is projected to reach $96 billion by 2030, according to PwC research.
“Localising the highest-value data layer directly accelerates that trajectory," she said.
Microsoft estimates that its cloud ecosystem will help create more than 152,000 jobs in the UAE, and has pledged to train one million people in AI skills by 2027.
However, local hosting alone does not guarantee security. “Local processing is simply one aspect of the equation, and doesn’t eliminate the need for strong data governance,” Mr Shawky noted.
“Being local is one part of the solution; having full visibility, control and quality assurance across that data is what truly makes AI safe, transparent and scalable.”
