Erica in Washington asked a great question about SEO with regards to the hosting of a site.  This was actually a tough one to answer because really there is no concreate answer from the search engines on this topic.

This is one of those questions that we are often asked (as to how hosting in one country while trying to rank in another affects rankings in the search engines) that has proven difficult to answer. For example, let's say your website is hosted in Canada, yet you want to target the United States. Does the fact that your site is hosted in a different country affect your rankings?

The answer is yes. At least right now this is how it works with the engines.

The question about server location and how it may impact SEO rankings of sites is an interesting question. We have actually asked the search engines this exact question and unfortunately they have not really provided us with a distinct, concrete answer as to the exact impact this will have on websites. However, here is what we do know:

• At this time, it is always better to be hosted in the country that you wish to rank for (if you want to rank well in the UK, then ideally your site should be hosted in the UK). That's not to say that you won't do well in rankings, it just means that the search engines tend to equate relevance (to some degree) to sites hosted in that specific country.
• Let's use the UK as an example. If you are looking to rank in the UK, the fact that you have a UK domain works in your favor (even if the site is hosted in the United States or Canada for example). The reason for this is that the search engines place a higher relevancy on the native country domain (ie. .ca sites may rank better in the Canadian version of the search engine than .coms providing that they are more relevant).
• The location of the website host provides the search engine with information about the location of the business and as a result enables it to provide more relevant results based on location of searchers. The idea that a website hosted in London is more likely to be relevant to a person searching for a service in London than a website hosted in New York.
• Google has stated that sites that are hosted in a location other than their primary country can run into problems. To what extent we're not exactly sure.

If we look at Google for example, there are ways to tell Google know the location of your site. The easiest way is setting the geographic target via Google Webmaster Tools. You can use this tool to let Google know the location of your site. If your domain is a location-specific TLD (such as .uk), Google will show you the country that your site is associated with but won't let you specify something different. However, if your domain is not country specific (such as a .com or .net), you can indicate the location of the site. Vanessa Fox posted an article on this a while back on Search Engine Land.

There has been a lot of discussion on this throughout the blogosphere and forums. Here's what a few people have said about the impact of GEO hosting and how they relate to search engine rankings:

http://www.webmasterworld.com/forum10/10917.htm
http://www.webmasterworld.com/google/3409622.htm
http://groups.google.com/group/Google_Webmaster_Help-Indexing/browse_thread/thread/31f09536fb8462f/c97d7cf02c37d80d?lnk=gst&q=
http://ventureskills.wordpress.com/2007/05/13/geo-targeting-ranking-factors/
http://www.searchguild.com/tpage30031-0.html
http://www.semconsultancy.com/seo/geo-location-domain/
http://www.seo-expert-services.co.uk/blog/posts/better-google.co.uk-search-engine-rankings.html

The fact of the matter is, is that it is best to have your website hosted in the country that you want to rank in. The engines have a relevancy factor they use to accommodate users from countries so that they are served up the most relevant results. Ideally the engines should serve up the most relevant results regardless of where the most relevant site is for that search term.

Original Post as found on SEO-Space