Introducing Germany's data residency laws for global companies

Germany’s commitment to data protection dates back to as early as 1978, with its pioneering data protection law. Since then, this legislation has undergone multiple revisions to adapt to contemporary realities. The most recent amendment took place in 2018, following the implementation of the European General Data Protection Regulation (GDPR).

As anticipated, the German Federal Data Protection Act (BDSG) underwent amendments to align with the GDPR. In essence, it supplements the GDPR, filling in gaps where the GDPR might be perceived as ambiguous or silent. The BDSG faithfully upholds all the core principles of the GDPR while also granting authority to German Data Protection Authorities to enforce both the GDPR and the BDSG.

This article will discuss the BDSG’s position on data residency in Germany for multinational corporations.

GDPR data residency overview

The General Data Protection Regulation (GDPR), remains one of the most popular Data privacy laws internationally. Since its inception in 2018, it has inspired several other data protection laws across the world. A primary focus of this policy is to improve data security within the European Union, and the personal data of European residents.

One strategy employed by the GDPR to secure data for European residents is the principle of Data Residency. In essence, data residency under the GDPR advocates for the storage of certain personal data collected from European residents in the geographic location of its origin. For instance, data gathered in France should remain housed within French borders. This approach offers tangible benefits by ensuring the careful handling of EU residents’ personal information and mitigating the risks associated with data transit, which are often susceptible to breaches.

Yet, implementing this principle presents challenges in a globalized economy where numerous enterprises operate across multiple continents. Fortunately, the GDPR’s stance on data residency allows for some flexibility. It permits organizations to transfer EU residents’ data outside the EU, provided they adhere to stringent legal frameworks, including:

The destination country must have adequate data protection laws similar to the GDPR to ensure the safety of private data.
If the destination country does not have adequate laws, there should be adequate safeguards or mechanisms to ensure data security. Such mechanisms may be standard contractual clauses or binding corporate rules.
Such data protection mechanisms or safeguards must make provision for some core principles of the GDPR, such as the rights of the data subject, transparency, purpose limitation, data minimization, accuracy, storage limitation, integrity, and confidentiality.

Complying with these principles would keep an organization from facing the penalties from flaunting data protection laws, which can be as high as 4% of a company’s annual revenue.

Germany, as a member state of the EU, adheres to the GDPR’s principles and requirements. However, as already mentioned, Germany also has its data protection laws, notably the Federal Data Protection Act (Bundesdatenschutzgesetz, BDSG), which provides additional regulations specific to Germany.

Germany’s data residency laws

The major German data residency laws are as follows:

The General Data Protection Regulation.
The German Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG). We shall refer to this law as BDSG for the remaining part of this article.

Although data residency requirements vary by country, the GDPR and BDSG share considerable similarities in their mandates. For the purpose of this discussion, we will focus exclusively on the BDSG, as the GDPR has been examined in the preceding section.

The German Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG)

As hinted earlier, the BDSG is a major German data privacy law. It complements the GDPR to strengthen the security of the personal information of German residents. The BDSG adapts the GDPR’s provisions to the German legal system and provides additional regulations and guidelines where necessary. The goal of BDSG is to regulate the processing of the private data of German residents in a way that guarantees the protection of individual rights and freedom while permitting the lawful and fair use of data. The BDSG covers all aspects of data processing activities, from data collection to processing, storage, and transfer. It also applies to all public or private organizations involved in any form of processing activities of the personal information of German residents.

Data processing principles

The BDSG sets rules for handling personal data, such as clarity on what data is collected, using it strictly for specific reasons, collecting only the required data, ensuring it’s accurate, not keeping it longer than needed, and keeping it safe and private. These principles are similar to those espoused by the GDPR.

Processing sensitive data

The BDSG contains rules for handling sensitive personal data, such as health or biometric information. Processing this type of data requires extra precautions and adherence to specific legal conditions, like obtaining explicit consent from individuals.

Data subject rights

This refers to the rights and privileges that must be accorded to the owners of the data being collected, processed, stored, or transferred. The BDSG guarantees the following rights for data subjects:

The right to access,
The right to request rectification,
Right to request permanent erasure,
Restriction of processing,
Data portability,
And the objection to the processing of personal data.

The BDSG also specifies procedures and requirements for data controllers to adopt in fulfilling the requests of data subjects.

Data protection authorities

The BDSG sets up data protection authorities both at the federal and state levels in Germany. These authorities are tasked with overseeing and enforcing data protection regulations. They are empowered to investigate complaints, issue warnings or fines, and implement corrective actions against organizations found breaching data protection laws.

Data processing agreements and contracts

The BDSG mandates that data controllers and processors establish data processing agreements meeting specific legal criteria. These agreements ensure that personal data is handled following data protection laws.

Beyond the BDSG, some other laws in Germany dictate that certain types of personal data must be retained or have a copy stored within the local jurisdiction. Businesses operating in Germany need to consider these laws that may indirectly impact data residency requirements. For instance, national security laws and anti-investigatory statutes may have implications for transferring or disclosing personal data outside the jurisdiction.

These regulations aim to ensure that individuals’ data remains under the protective umbrella of German data protection laws, guarding against unauthorized access or misuse.

Some examples of these laws include;

Financial record Laws

Companies are mandated to retain their books and records within German territory, as stipulated by the country’s tax laws. This requirement extends to electronic records, which may only be relocated to another jurisdiction with prior approval from the relevant tax office.

Telecommunications data storage

For providers of publicly available telecommunication services, compliance with data residency laws entails storing traffic data locally within Germany. This obligation applies to entities offering telecommunications connections, such as telephone services and internet access providers, for an undefined period. However, despite these requirements, enforcement has been temporarily suspended by the Federal Network Agency due to ongoing legal proceedings.

Also, the Workers committee, akin to unions in other jurisdictions, can advocate for data residency concerning employee data.

To navigate these complexities, businesses must adopt comprehensive data management and compliance strategies. This includes implementing robust data protection measures, conducting regular audits to ensure adherence to regulatory requirements, and staying informed about legal developments that may impact data residency obligations.

Data residency requirements in Germany

The Data Residency requirements in Germany are mostly derived from the provisions of the GDPR and BDSG. As highlighted earlier, the GDPR does not emphasize data residency, especially regarding data transfers outside the EU/EEA. Realizing the reality of living in a globalized economy, the GDPR is not strict on data residency. It rather places requirements for data transfers outside the EU/EEA. The requirements are as follows:

The receiving country must have “adequate” data protection laws.
Strong security measures must be implemented during the data transfer.
Explicit consent must be obtained from the data subject before embarking on the transfer.

Although the BDSG does not explicitly require data residency or data sovereignty compliance, other industry-specific German laws as mentioned above may require data residency. Also, the BDSG empowers German data authorities to enforce compliance with the approved standards set forth by the GDPR. Consequently, these authorities have broad investigative powers, which makes companies more mindful of compliance.

Germany’s cross-border data transfer requirements

The guidelines governing data transfers outside Germany are established by both the GDPR and the BDSG. In this section, we’ll discuss some pivotal requirements you need to grasp to ensure compliance.

Legal basis for data transfers

The European Union’s GDPR does not permit data transfers outside the EU/EEA unless some conditions are fulfilled. These conditions are as follows:

Adequacy Decisions: Simply put, this refers to approval from the data regulation authority that the data-receiving country has adequate data protection mechanisms to ensure the security of the data about to be transferred there.
Standard Contractual Clauses (SCCs): There must be a pre-approved contractual clause approved by the European Commission for data transfers between data controllers or processors.
Binding Corporate Rules (BCRs): Existence of internally approved codes of conduct for multinational organizations regulating transfers of personal data within the organization.
Derogations: Exceptions allowing data transfers in specific situations, such as with the explicit consent of the data subject or for the performance of a contract.

Fulfilling any of these conditions is enough for an organization to ensure compliance in data transfers outside the EU/EEA.

Requirements for Data Protection Impact Assessments (DPIAs)

Organizations must conduct DPIAs for data processing activities that are anticipated to pose a significant risk to the rights and freedoms of individuals. This requirement includes situations involving cross-border data transfers in Germany.

Data transfer agreements

When organizations transfer personal data outside the EEA, they are obligated to establish data transfer agreements. These agreements, such as Standard Contractual Clauses (SCCs) or Binding Corporate Rules (BCRs), are essential to guarantee that suitable measures are in a position to safeguard the transferred data.

Data transfer to third countries

Data transfer to third countries refers to the movement of personal data from a country with strict data protection laws to a country with weaker or no such laws, typically outside of the European Union (EU). In such circumstances, the German cross-border data transfer laws stipulate that it undergoes extra scrutiny by data protection authorities. This scrutiny aims to ensure that the transfer aligns with GDPR’s standards and doesn’t compromise the rights and freedoms of data subjects.

Data protection authorities’ oversight

Data protection authorities in Germany oversee and enforce compliance with cross-border data transfer requirements, including the legality of data transfers to third countries.

In essence, enterprises engaged in the collection, processing, or retention of personal data belonging to German residents must meticulously evaluate the legal grounds for transmitting such information beyond the borders of the EU/EEA. They should diligently institute all necessary measures to uphold conformity with relevant data transfer regulations. Neglecting to adhere to these stipulations may lead to severe repercussions, including fines and sanctions imposed by data protection authorities.

How to achieve Data Residency Compliance in Germany — InCountry’s approach

At InCountry, we make it our priority to help our clients stay compliant with all data privacy laws across all their countries of operation. Our cloud-based Data-Residency-as-a-Service allows you to store all your private data in Germany and still have access to it from any other location in the world.

Moreover, our up-to-date security protocols will ensure your data remains safe, whether at rest or in transit. Our data vaults, firewalls, encryption, tokenization options, etc., and our compliance with various security and compliance standards, such as SOC 2, PCI DSS, and HIPAA, make your data safest with us.