Data residency vs data sovereignty - two concepts worth distinguishing between

Data residency vs data sovereignty - two concepts worth distinguishing between

The growing complexity of data regulations worldwide requires companies to take a highly precise approach to information management. Within this context, it's essential to distinguish between two often-confused concepts: data residency and data sovereignty. While they may seem similar at first glance, they address very different dimensions of data governance—and carry distinct legal, technical, and strategic implications.

Who governs your data? The role of data sovereignty

Data sovereignty refers to the legal principle that data is subject to the laws of the country where it is physically stored. In practice, this means the jurisdiction of the server’s location—not the origin of the data—determines which legal framework applies.

This presents a significant challenge for multinational companies, which must often comply with multiple legal regimes at once. For example, data collected in Spain but stored on servers in the United States must comply with both the European Union’s GDPR and the U.S. CLOUD Act. This dual obligation adds operational complexity and increases the risk of non-compliance.

The stakes are high. Today, over 100 countries have enacted their own privacy and data protection laws, and failure to comply can be costly. In 2023, for instance, Meta was fined €1.2 billion by Ireland’s data protection authority for transferring user data to the U.S. in violation of GDPR.

Where is your data stored? The importance of data residency

Data residency, by contrast, focuses solely on the geographical location where data is stored—whether it's in a specific country, region, or jurisdiction. While it does not directly determine legal oversight, it often influences which regulations come into play.

For global organizations, understanding where their data resides is vital—not just for compliance, but also for performance, latency, and user trust. Many companies respond to residency requirements by investing in local data centers or partnering with cloud providers that can guarantee storage within specific legal boundaries.

A case in point: in India, the central bank temporarily suspended American Express and Mastercard from onboarding new customers until they complied with local data storage rules.

Key differences at a glance

To fully grasp the significance of these concepts, it’s helpful to compare them across three essential dimensions:

1. Legal scope - Data sovereignty reflects a government’s legal authority to regulate data within its borders. Data residency, meanwhile, identifies the physical location of the data, which in turn helps determine jurisdiction.

2. Regulatory purpose - Sovereignty enables states to craft and enforce their own data laws—like Brazil’s LGPD or China’s PIPL. Residency, on the other hand, compels companies to adapt infrastructure and operations to meet local requirements.

3. Business value - Sovereignty empowers governments to safeguard citizens’ privacy and national security. Residency provides clarity for organizations about which standards they must meet regarding data storage, transfer, and access.

What this means for global businesses

Both data residency and data sovereignty shape critical business decisions—from selecting cloud providers and infrastructure locations, to defining policies on cross-border data flows and legal compliance.

To address these requirements effectively, organizations should:

• Conduct regular data audits to assess storage locations, data types, and associated risks

• Implement policies that align with the legal environments where the data is processed

• Stay current with regulatory changes and proactively update internal procedures

According to a 2022 study by Scality, 98% of IT departments in the U.S. and Europe already have data sovereignty strategies in place.

What about data localization?

A related but stricter concept is data localization—the legal requirement that certain types of data must remain within national borders, with no exceptions. Russia, for example, mandates that data about its citizens be stored exclusively in local data centers.

This trend is gaining momentum, prompting companies to rethink their cloud strategies and adopt region-specific infrastructures that comply with localization mandates.

Conclusion

While closely related, data residency and data sovereignty are fundamentally different. One refers to where your data lives. The other defines who has the legal right to control it.

For companies operating across borders, understanding this distinction is not just a technicality—it’s a matter of legal risk, operational integrity, and long-term trust. Recognizing how these concepts interact, and acting accordingly, is now an essential part of conducting secure and compliant business in a global digital landscape.

Źródła:

https://www.oracle.com/pl/security/saas-security/data-sovereignty/data-sovereignty-data-residency/

https://www.splunk.com/en_us/blog/learn/data-sovereignty-vs-data-residency.html