Data sovereignty: What it is and compliance considerations

Every digital interaction generates data. Often, it moves across borders; a login request in Paris might be processed on servers in California and stored in Singapore. Given this constant global exchange, the question of how organizations should manage data and which country’s laws apply where is a pressing issue.

Emerging from the complicated web of obligations that exist in a globalized digital world is the concept of data sovereignty. Data sovereignty shapes how companies build infrastructure and write contracts, affects the rights that individuals can assert, and plays into the penalties that regulators can levy.

Please note: This information is for general educational purposes and not legal advice.

What is data sovereignty?

States exercise the sovereign right to enforce laws covering their citizens and residents. In the globalized digital world, governments have varying degrees of legal jurisdiction over citizens’ data. Even if a tech company has no physical presence within a country’s borders, the principle of data sovereignty suggests that the state may still enforce laws about data related to its citizens and residents.

The meaning and implications of data sovereignty are distinct for companies, governments, and individuals. Data sovereignty is sometimes defined as the principle that digital information falls under the legal authority of the country where it is generated, but it’s also discussed in terms of consumer rights and localization requirements.

For governments

From the perspective of governments, data sovereignty is an invitation to draft and enforce laws covering how companies manage citizens’ data. Notably, data sovereignty suggests that these laws can have extraterritorial reach. In its most expansive reading, the principle suggests that the involvement of citizens’ data is sufficient to grant a country jurisdiction, regardless of where the company or hardware storing the data is located.

One common manifestation of data sovereignty is localization requirements: laws saying that data about or generated by citizens must be stored within the country. Corporations must abide by such laws.

For individuals

For individuals, data sovereignty has real privacy implications. On the one hand, many benefit from privacy-friendly frameworks such as the General Data Protection Regulation (GDPR), which requires any country serving residents of the European Union (EU) or European Economic Area (EEA) to comply with its standards. On the other hand, it can also lead to reduced privacy; the principle of data sovereignty may grant governments the right to request firms to hand over customers’ information.

With its implication that companies must abide by local laws in all of their customers’ jurisdictions, data sovereignty can be difficult for businesses to navigate.

Key principles of data sovereignty

Data sovereignty isn’t a single rule but a set of principles that shape how information is governed across borders. These principles explain why sovereignty matters in practice and how it affects organizations’ handling of sensitive data.

• Jurisdiction and data management: Exercising sovereignty, governments can dictate how and where companies store data connected to citizens and residents.
• Obligations for transferring data: Moving data across borders sometimes comes with conditions attached; organizations may need to meet legal checks before information can leave a country.
• Active enforcement: Supervisory authorities can suspend transfers, levy fines, and demand changes to infrastructure or contracts.
• Security as part of sovereignty: Many laws treat technical safeguards as legal duties, making security inseparable from compliance.
• Extraterritorial reach: Laws like the GDPR extend beyond regional borders. This means organizations may face obligations from one jurisdiction even while storing data in another.
• User rights and transparency: Sovereignty often carries obligations to grant individuals rights over their data (such as access, correction, and deletion) and requires transparency regarding where their data is located and who can access it.

Legal considerations

Legal jurisdiction and data control

Governments assert control over data in different ways. Some require certain categories of information to be stored within national borders and place strict limitations on moving data across borders. For example, Russia’s localization law requires certain data to be stored within its borders. Others, like the EU, extend their rules beyond their territory, applying them even when residents’ information is processed overseas.

Data sovereignty vs. data privacy and security

Sovereignty, privacy, and security are related concepts but have distinct meanings. Sovereignty refers to a country or region’s authority to regulate data, privacy is the rights people hold over their information, and security covers how that information is kept safe.

Often, they reinforce each other: laws set safeguards, people gain rights, and businesses put security controls in place.

Data sovereignty vs. data localization vs. data residency

Data sovereignty, localization, and residency are related but potentially competing concepts.

Definitions and key differences

• Data sovereignty refers to governments asserting legal authority over data related to citizens and residents.
• Data localization is a mandate that certain categories of data be stored within a country’s borders.
• Data residency is where a company actually ends up storing data.

Why the distinction matters for compliance

Mixing up sovereignty, localization, and residency could lead to mistakes that carry significant consequences. Each principle drives different obligations and may conflict with another.

• Sovereignty conflicts: A company can keep data inside a country, yet still face competing demands if foreign authorities claim access rights. This creates exposure to cross-border disputes, and organizations may face conflicting regulators demanding opposite actions.
• Localization barriers: Localization rules can limit the use of multi-region backups or global analytics unless providers offer compliant local alternatives.
• Residency promises: Some contracts or policies may commit companies to host certain data in a specific region. That may satisfy customer expectations, but residency can also be at odds with another country’s localization requirements. And regardless of actual storage location, another country may exercise sovereignty and demand access to certain data.

Distinguishing between the three can help avoid both non-compliance (failing to meet a legal requirement) and over-compliance (building costly controls that aren’t strictly necessary).

Why data sovereignty matters

For companies, governments, and end users, data sovereignty is an important consideration in today’s world.

Protecting user privacy and trust

Clear sovereignty rules give individuals confidence that their personal information won’t be used in inappropriate or intrusive ways. They also give people enforceable rights, such as the ability to access, correct, or delete their data.

The EU’s GDPR is the leading example: it established a rights-based model that emphasizes consent requirements. This has inspired similar laws in places like California, reshaping how companies design their data practices and user services across sectors.

Strengthening security and risk management

Sovereignty rules also influence how data must be protected. To reduce exposure to threats and potential fines, many organizations adopt safeguards such as encryption, role-based access controls, audit logging, and incident response planning.

In fields like healthcare and finance, regulators in many countries have gone further by requiring organizations to follow prescribed safeguards for electronic records rather than leaving the choice entirely to the business.

Shaping digital transformation and cloud adoption

Today, cloud adoption closely aligns with data sovereignty. The largest providers have introduced features and commitments designed for customers who need assurance that their data remains under local oversight.

Examples include Microsoft’s EU Data Boundary, Google Cloud’s sovereign solutions, and Amazon Web Services (AWS) European Sovereign Cloud. These initiatives limit out-of-region transfers and strengthen compliance options for public sector agencies and industries like healthcare and finance.

Data sovereignty laws and regulations

Data sovereignty rules vary widely across the world. Though some countries (namely those in the EU) work within shared frameworks, for the most part, each country has different laws when it comes to how firms must store, manage, and share data.

The role of GDPR in the EU

The GDPR is arguably the most influential privacy law in the world. It applies not only inside the EU but also to organizations abroad if they handle the data of EU or EEA residents. Many non-EU countries have also looked to the GDPR as an example when crafting their own regulatory frameworks.

To send a resident’s data outside of the bloc, the GDPR provides a few legal routes:

• Adequacy decisions: The European Commission can declare another country’s laws “adequate,” meaning they provide protections similar to the EU’s. If such a decision is in place, companies can transfer data to that country without the need for further legal safeguards.
• Standard Contractual Clauses (SCCs): When there is no adequacy decision, companies can use a set of contract terms approved by the European Commission. These clauses bind both the sender and the recipient to protect the data at EU standards.
• Derogations for specific situations: In rare cases, data can be transferred if there is explicit consent from the individual or if the transfer is strictly necessary.

U.S. regulations and sectoral laws (CCPA, HIPAA, FedRAMP)

The U.S. has no single federal privacy law. Instead, it relies on a sectoral model, where rules depend on both the industry and the state, which is different from Europe’s approach to privacy.

• California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA): These laws give Californians the right to know who collects their data, how it's used, and to whom it's disclosed, as well as the right to correct, delete, and opt out of its sale and sharing.
• Health Insurance Portability and Accountability Act (HIPAA): In healthcare, HIPAA requires applicable entities such as hospitals, insurers, and their business associates to safeguard electronic protected health information (ePHI). The Security Rule mandates measures like access controls and audit logging, while the Breach Notification Rule requires disclosure of data breaches.
• Federal Risk and Authorization Management Program (FedRAMP): Cloud providers that handle sensitive data on behalf of U.S. federal agencies must meet FedRAMP security standards.
• Clarifying Lawful Overseas Use of Data (CLOUD) Act: Clarifies that U.S. law enforcement orders apply to data held by providers under their control, even if stored abroad. It also allows executive agreements with foreign governments for reciprocal access.

China’s Cybersecurity Law and Data Security Law

China regulates data through a combination of the Cybersecurity Law (CSL), the Data Security Law (DSL), and the Personal Information Protection Law (PIPL). Together, these rules assert the country’s data sovereignty:

• Certain operators, especially those considered “critical information infrastructure,” must store data domestically and follow certain security procedures.
• Transfers of personal data or “important data” abroad often require a government security review by the State cybersecurity departments.
• The PIPL, China’s closest equivalent to the GDPR, also applies in some cases to companies outside China if they process the data of Chinese residents.

India’s Digital Personal Data Protection Act

India enacted the Digital Personal Data Protection (DPDP) Act in 2023. It introduces rules on consent, purpose limitation, and notice to individuals, giving Indian residents certain rights over their data.

On international transfers, the law does not impose a blanket localization rule. Instead, the government may designate certain countries where data cannot be sent, while transfers to all other destinations remain allowed if organizations comply with the law’s obligations.

The DPDP Act is not yet in force and is still actively being revised. The government is still discussing what requirements will be put in place, how enforcement will proceed, and what penalties may be levied.

Other regional and emerging frameworks

For now, most countries outside of the EU take an independent approach to data laws. That said, efforts are being made to harmonize laws across regions, with the Association of Southeast Asian Nations (ASEAN) and the African Union (AU) actively working on shared frameworks to reduce barriers to trade and international cooperation.

At the same time, various countries and groups of countries are engaged in informal coordination with the EU. For example, various South American countries are working toward convergent regulation with the EU with an aim to promote shared values and foster greater interconnectedness.

Emerging groupings aside, individual countries are proceeding with their own data and privacy laws. These include:

• The Brazilian Data Protection Law (LGPD) is similar to the GDPR model and is enforced by a national data authority, giving Brazilians the right to access and delete their data.
• Singapore’s Personal Data Protection Act (PDPA) requires organizations to ensure that personal data sent abroad is protected to a standard comparable to Singapore’s own rules.
• South Africa’s Protection of Personal Information Act (POPIA) sets conditions for lawful processing and has an active regulator that issues guidance and penalties.

Data sovereignty requirements

Global compliance frameworks

Broad privacy frameworks often require companies to build processes that ensure data is handled consistently across borders.

For global businesses, this means documenting how data moves between jurisdictions, setting up contracts with vendors that reflect regulatory expectations, and applying technical safeguards where needed. Regulatory guidance also stresses the importance of continuous assessment: compliance is not a one-time project but an ongoing operational responsibility.

These requirements also add significant compliance costs, as organizations must dedicate staff, tools, and ongoing resources to keep pace with changing rules.

Multi-jurisdictional challenges

Conflicting rules are common in cross-border operations. One country may issue a disclosure order while another prohibits releasing the same data.

Some public sector customers also require cloud providers to host data within their jurisdiction and use locally based staff. For instance, Oracle’s EU Sovereign Cloud specifies that EU-based personnel operate the service for government and regulated industry clients who request such guarantees.

To comply with localization rules, companies may face requirements to store or process data locally, which the Organisation for Economic Co-operation and Development (OECD) notes can increase business costs and operational complexity for firms under differing national laws.

Challenges in achieving data sovereignty

Navigating conflicting regulations

In Europe, the E-evidence package will eventually require service providers to designate an establishment or legal representative within the EU who can receive and comply with orders issued by authorities in other Member States. This creates new cross-border obligations for providers offering services across the EU, regardless of where the data is stored.

Internationally, the EU-U.S. Data Privacy Framework has restored a legal basis for transfers to certified U.S. companies after earlier arrangements (like Privacy Shield) were struck down in court challenges.

Because future legal disputes are still possible, organizations may wish to keep fallback transfer mechanisms ready, such as Standard Contractual Clauses (SCCs) and Binding Corporate Rules (BCRs), which are internal policies approved by EU regulators that let multinationals transfer data within their corporate group.

Overcoming technological barriers

Technology can add challenges to compliance. Some security-telemetry and diagnostics tools automatically send data to central analytics platforms outside the chosen jurisdiction, which can place that data under foreign legal authority and create sovereignty concerns.

Some cloud services, like Microsoft Azure or AWS, let customers pick where data is stored. With servers in most countries, it’s easy for firms to avoid running afoul of localization requirements.

That said, certain legacy industrial or control systems may use outdated operating systems and protocols that lack built-in encryption or authentication mechanisms, making them harder to bring into compliance with modern sovereignty/security expectations.

Businesses still using on-premises systems that don’t operate in every country where their users live are increasingly locked out of markets with strong localization laws. The process of switching to cloud or other off-site storage options can be difficult for some firms, especially if core technologies are deeply woven into on-premises storage.

Balancing innovation with compliance

Keeping data within borders may limit access to services that depend on global connections, such as advanced analytics or threat intelligence.

At the same time, sovereignty requirements have led cloud providers to introduce features such as regional hosting commitments, confidential computing, and “hold-your-own-key” encryption. Industry guidance suggests that organizations that incorporate sovereignty considerations into their architecture early can reduce compliance risks while continuing to use innovative cloud services.

Strategies for data sovereignty compliance

Organizations that serve customers in multiple countries are generally required to track their data, design systems that respect jurisdictional limits, and prepare for audits or government requests. Below are steps widely recommended by regulators and adopted across industries.

Practical steps organizations may take

• Reconsidering data storage practices: Many regulators expect organizations to maintain visibility into where data resides and how it moves across borders. Maintaining an inventory of datasets, their storage locations, and transfers can help meet those expectations.
• Use of approved transfer mechanisms: Under the GDPR and similar frameworks, international transfers are typically governed by established adequacy decisions or legal instruments like SCCs, BCRs, or limited derogations. Relevant employees will likely want to familiarize themselves with these.
• Risk and exposure assessments: As a starting point, it’s a good idea to consider the organization’s overall exposure. In some cases, written assessments may be recommended or even required by regulators.
• Evaluation of security measures like encryption: Though laws vary, many jurisdictions require certain data to be protected using specific security standards. Encryption and access controls often come into play. Regulatory matters aside, having an up-to-date picture of security practices organization-wide is usually helpful.
• Contract assessments: Agreements with vendors and other third parties may be affected by various regulatory frameworks. It’s often advisable for organizations to review how these are written, which contractors are used, and where they’re located.
• Keeping abreast of legal changes: Transfer mechanisms can change overnight, so many organizations allocate resources to monitoring for changes in the regulatory environment. Though most changes are signaled ahead of time, adaptation can still require considerable effort.

Cloud and hybrid infrastructure controls

• Regional settings: Major cloud platforms let customers choose the region where their data is stored and processed. Depending on the nature of operations, this may be an essential factor when choosing a provider.
• Private connections: Some providers offer “private link” features that keep traffic on the provider’s internal network instead of routing it across the public internet. This reduces the risk of interception or misrouting when data moves between services.
• Backups and restores: Many organizations store backups in jurisdictions matching the primary data location to reduce the risk of non-compliance. Testing recovery procedures helps to confirm that restores do not cause data to move to a region outside approved policy or regulation.
• Extra protection for sensitive data: In sectors such as health, finance, or government, organizations often add stronger safeguards. Hardware security modules (HSMs) protect encryption keys, while confidential computing keeps data encrypted even while it is being processed.
• Failover checks: Some cloud providers offer high-availability and disaster-recovery features that automatically shift workloads to backup systems if the main system fails. By default, these backups may sit in another geographic region. Some organizations choose to configure failover so that backup systems remain within approved borders.
• Network topology: The way a system is structured (whether centralized, distributed, or segmented by region) directly affects how data flows and which jurisdictions claim authority over it. Data sovereignty is worth taking into account when designing a network.

Tools and platforms for compliance

Technology can help organizations keep data under the right jurisdiction, but only if the tools are configured with sovereignty in mind. The following categories of software are widely used to support compliance:

• Data Security Posture Management (DSPM): By scanning for and classifying sensitive data across cloud, on-prem, and hybrid environments, DSPM tools can highlight when data violates residency or compliance rules.
• Cloud Security Posture Management (CSPM): These tools continuously inspect cloud infrastructure for misconfigurations, compliance risk, and deviations from security baselines.
• Security Information and Event Management (SIEM): SIEM software can be used to collect logs, alerts, and events from across systems and applications. This gives organizations a centralized tool for detecting unauthorized activity, auditing data flows, and preparing evidence for compliance reviews.

Leveraging expert consultation

With the slew of regulatory considerations it raises, data sovereignty is not something one team can solve alone. Legal and privacy counsels, IT security, and business leaders may need to be involved in design reviews. Given the risks of non-compliance, it may be wise for an organization to consult experts when exploring how to adapt systems to accord with the web of relevant regulations.