The Azure SQL Database (PaaS) service can be used as an FME Server System database.But there are a few subtle differences that we need to be aware of when we create the FME Server database.Azure SQL Database does not support the DEFAULT_DATABASE parameter and logins need to be created on the MASTER database.When using an Azure SQL Database as an FME Server system database I would recommend creating a database with the name fmeserver via Azure Portal or Azure CLI.Once the resource is created, run the command to create the login on the MASTER database of your Azure SQL Database service, without the DEFAULT_DATABASE parameter:

CREATE LOGIN fmeserver WITH PASSWORD = '
        
         
Then connect to the fmeserver database and run the rest of the sqlserver_createUser.sql script:
         
CREATE USER fmeserver FOR LOGIN fmeserver;GO
         
GRANT CONTROL, TAKE OWNERSHIP, ALTER, EXECUTE, INSERT, DELETE, UPDATE, SELECT, REFERENCES, VIEW DEFINITION TO fmeserver;GO
         
EXEC sp_addrolemember N'db_owner', N'fmeserver';GO
         
Now you can run the sqlserver_createDB.sql script while connected to the fmeserver database.These 2 commands can be removed from the script or will be ignored because the fmeserver database already exists:
         
CREATE DATABASE fmeserver;GO USE fmeserver;
         

For a comparison on between different MS SQL Server deployment options check out this link:
https://docs.microsoft.com/en-us/azure/sql-database/sql-database-paas-vs-sql-server-iaas