Residency requirements come from privacy law, government contracts or industry rules, and they matter for AI because a cloud AI service can process a request on servers in a different country than the one the data came from. A company with customers in the European Union or Gulf, for example, may need to confirm exactly where a vendor's servers and backups actually sit before sending data to them.
The common confusion is treating data residency and data governance as the same requirement. Residency is about physical or legal location, while governance covers ownership, quality and access. A vendor can meet a residency requirement and still have weak access controls, so the two need to be checked separately.