The mysql database should be located on the local server for performance reasons as postfix etc. is using it directly. ISPConfig cares itself on database replication if used on multiserver setups.
But in general there is no problem to use a remote host as long as you enter valid database credentials for the remote server for a suer that has root priveliges. You should test the database connection from the remote host with the mysql command:
mysql -h remote.host.tld -u root -p
if you are able to login then, it should work for ISPConfig as well.