Companies outside the EU need to comply with the General Data Protection Regulation (GDPR) if they offer goods or services to individuals in the EU or monitor the behavior of individuals in the EU.

There are several reasons for this:

• Extraterritorial Scope: GDPR has an extraterritorial scope, meaning it applies to companies outside the EU if they process personal data of individuals in the EU in connection with offering goods or services, regardless of whether a payment is required.
• Data Protection Standards: GDPR sets high standards for data protection and privacy rights. It requires companies to implement measures to protect personal data and provides individuals with rights over their data, such as the right to access, rectification, and erasure.
• Data Transfers: GDPR restricts the transfer of personal data outside the EU to countries or organizations that do not provide an adequate level of data protection. This means companies outside the EU must ensure they have appropriate safeguards in place when transferring data from the EU.
• Reputational Risks: Non-compliance with GDPR can damage a company's reputation and lead to loss of customer trust. With increasing public awareness of data privacy issues, consumers are more likely to choose companies that demonstrate a commitment to protecting their privacy rights.
• Legal Consequences: Failure to comply with GDPR can result in significant fines and penalties. Companies may face fines of up to €20 million or 4% of their global annual turnover, whichever is higher, for serious violations of the regulation.

Companies outside the European Union need to comply with the AI Act due to its extensive extraterritorial scope and the significant implications it has on businesses globally.

Here are the key reasons for compliance:

• Extraterritorial Scope: The AI Act extends beyond the boundaries of the EU, much like the GDPR, affecting any business that provides goods or services to individuals in the EU or whose AI systems' output is used within the EU, regardless of the company's location or whether it has a physical presence there
• Alignment with EU Standards: The act sets forth stringent regulations to ensure AI systems adhere to fundamental rights and EU values. Non-EU companies engaging with the EU market must align their AI applications with these standards to avoid legal barriers to market entry and maintain competitiveness
• Risk Mitigation: Compliance with the AI Act is crucial for mitigating risks associated with AI governance, including data protection, transparency, and accountability. Companies must safeguard against the potential misuse or negative impact of AI technologies
• Market Access and Adoption: Adhering to the AI Act's statutes will likely influence the adoption and market success of AI products within the EU. Businesses that preemptively integrate these regulations into their processes can gain a competitive advantage and build customer trust .
• International Influence: The EU's regulations often set precedents for global standards. Companies complying with the AI Act will likely be better prepared for future AI-related regulations in other countries as standards internationally may converge to mirror the EU's approach
• Legal and Financial Consequences: Failure to comply with the AI Act can result in substantial fines up to 7% of global annual turnover, creating a powerful financial incentive for companies to comply to safeguard against these penalties
• Reputational Impact: Non-compliance can damage a company’s image, leading to potential loss of goodwill and consumer trust—especially critical in a world increasingly aware of ethical AI concerns