Microsoft says yes, "as a data controller". The nine facts below are what that sentence means in practice, each quoted from Microsoft and linked to where it says it.
Who is the data controller?source
Microsoft. Their documentation reads "Clarity is GDPR-compliant as a data controller."
A processor handles data on your instructions. A controller decides for itself. Installing Clarity is closer to introducing your visitors to Microsoft than to hiring a vendor.
Will Microsoft sign a DPA?source
No. "We are not able to sign any additional terms or contracts (e.g., DPAs)."
A data processing agreement is the standard instrument for this relationship, and many procurement and security reviews require one. There is no version of Clarity that comes with a signed DPA, at any price, because there is no price.
Can you delete one person’s data?source
No. "You need to delete the entire project to delete user’s data."
A GDPR erasure request for a single visitor cannot be honoured without destroying the entire project’s history. In practice that means it cannot be honoured.
How long is it kept?source
Recordings for 30 days. Favourites and "randomly selected sample of recordings" for up to 9 months.
The 30-day figure is the one usually quoted. The 9-month tail is the one that matters for a retention schedule, and it is a sample you did not choose.
Where is it stored?source
"Clarity data is stored in one of Microsoft’s US data centers."
For an EU or UK operator this is a transfer out, and it is not configurable. There is no EU-region option to select.
What are the cookies for?source
"Any third-party cookies used by Clarity are to support operational purposes like advertising." The visitor opt-out Microsoft points to is the Digital Advertising Alliance’s, at optout.aboutads.info.
The opt-out being an advertising-industry mechanism tells you which category this sits in. That is not a leak or a scandal; it is the arrangement, stated plainly by them.
Can you use it on a health, finance or government site?source
No. The terms of use: "You will not use the Offering in connection with content which may contain sensitive user materials, such as health care, financial services or government-related information."
This is the sentence behind every "is Clarity HIPAA compliant" thread. It is not a compliance verdict; it is Microsoft telling you not to install it there.
What is the data used for?source
Microsoft: it "processes a massive amount of anonymous data around user behavior to gain insights and improve machine learning models that power many of our products and services. Clarity is one of the ways Microsoft gathers this important data".
That is the price of a free tool, stated by the vendor. Note the word "anonymous": Microsoft does not say it trains on recordings, and neither do we.
What is masked by default?source
PII is detected and masked in the browser, so it "never reaches Clarity servers". The mode is one of "relaxed, balanced (default), or strict".
This part is genuinely well built, and better than a lot of paid tools. Worth knowing the default is balanced rather than strict, so the strictest setting is one you opt into.