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It will be where it is physically.
If you're expecting to change the geo tag on an IP to say, Antarctica, and go "I've got an Antarctica based VPS" you're out of luck, it doesn't move 18273812783km (or miles, or whatever)
Always physically.
Some VPN companies such as PureVPN get away with the marketing. Their server is physically located in Brazil, but they advertise it as being in Belize. This is an example of IP GeoLocation, and many lookups utilise databases such as MaxMind. There is always inaccuracies.
Advice - Don't get fooled and always check the traceroute.
The physical location always matters when it comes to latency. For other things it depends on the purpose for which you want the VPS. If you want it to host a website then for SEO whatever the geo IP mapping is will matter. If it's for a VPN then the virtual location matters in order to unblock geographically restricted content.
I've got a RamNode VPS that is physically in NY city. However most geolocation services show it as being in Georgia, which I believe is where the company is registered. That's a discrepancy of about 1000 miles. I notice too that with my home IP it also varies wildly depending on the phases of the moon and the price of pork.
Of course latency will relate to actual physical location of the server, but geolocation services spew garbage. They do however seem to be able to tell what country in which the server is located. That's good in Lichtenstein or Monaco, but not so impressive in USA.
Well, it's a matter of perspective. The less accurate geolocation of home IPs are, the happier I am.
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Totally agree. My ISP gets IPs from a larger company that covers two Canadian provinces, and the variation can be a couple of hundred miles either way.
Off topic, and on a side note: It used to be even better for me privacy wise. Most people on this ISP are natted to a single IP so without a subpoena they're quite anonymous. For obvious reasons I asked the ISP for a fixed IP (no charge) which is also clean compared to the shared one.
Is your question related to HEG/dF by any chance?
In relation to what? To the SEO? In that case, it makes REALLY no difference, provided that you geolocalized the VPS through the webmaster tools.
One of our 4G LTEs geolocates to the town the owner is located in, which has like 1000 people... worries me.
The other one geolocates to like Bregenz, which is like on the other side of Austria....
Anyway, OT: Geolocation tricks and selling then as "located in $GEO" is not only stupid but plain and simple fraud (at least in EU) as you sell something you never intended to provide and don't have at all.