Data Residency in Europe: From Privacy Requirement to Business Priority

Data residency has become a strong trend among European companies and institutions in recent years, and this focus is expected to continue throughout 2026 and into 2027. 

Why data residency is back in focus 

This concept, also known as data localization, is not new: it was already a key principle when the GDPR came into force in 2018. However, today’s geopolitical context, the rise of AI, and new regulations and challenges in the digital space have reignited interest in this topic like never before. 

In short, data residency refers to requirements to keep data within a specific geographic area. In the European Economic Area (EEA), companies and institutions increasingly require providers to avoid processing data outside the EEA, whether personal or non-personal. 

From international transfers to local processing 

Although transfer mechanisms such as the EU–US Data Privacy Framework are still valid and in use, many organizations now prefer to avoid international transfers altogether. These restrictions are increasingly being included contractually and enforced with their partners. 

The challenge for providers and their value chains 

So, how is this affecting providers and third parties? In a globalized context, a large proportion of them, regardless of sector, rely on many different providers, tools and technologies that are often US-based or otherwise located outside the EEA. 

Localization requirements limit companies’ ability to apply for tenders and bids and to compete in the market if they are not able to comply with these conditions. Many organizations are looking to change providers or adapt their operations. However, such changes do not happen quickly, and they require an initial step based on a solid understanding of the value chain. 

What this means for DPOs and Privacy teams 

This need for knowledge is affecting DPOs and Privacy teams, especially when data localization restrictions refer to Personal Data. It also reveals an underlying reality: many organizations do not have the same level of certainty and robustness in this area as they do in other areas of compliance, and the scope of the work can be enormous, depending on the company. 

Understanding and documenting the processing chain has never been an easy task, because it depends on third parties to provide information and ensure security. This is precisely where the real challenge lies.  

Preparing for a data-localized future 

How can companies and Privacy teams anticipate these requirements from their customers? They can start by understanding their partners’ business practices, setting clear requirements in their contracts, reviewing existing agreements, and actively monitoring adherence to the rules imposed by customers and regulators. 

The current context is pushing organizations toward practices that will be positive in the long term. However, this will require teams, not only Privacy ones, to adapt. 

They will need new tools for data discovery, they will need faster and more reliable ways of communicating with their value chain. They will also need to maintain an ongoing effort instead of relying solely on one-time or periodic audits. Finally, they will have to extend their scope beyond their own organization and into their broader ecosystem of partners and providers. 

The market will push away companies that are not ready to compete. If this is not yet a priority for you, maybe now is the right time to change that. 

This article has been reviewed with the assistance of AI and is provided for informational purposes only. It does not constitute legal advice. Organizations should consult their legal or privacy counsel for advice tailored to their specific situation