From past experience, it is when you are physically in the EU, but this implementation could obviously differ from how they've gated features in the past.
I have the complete opposite experience. Originally had a Canadian bought iPhone in Spain, had all the features a Canadian has and a European doesn’t (or vice versa). Upgraded to a Spanish bought iPhone and I am still a “Canadian”. I’ve been here for nearly 5 years but my Apple account is still fully Canadian (Canadian address, Canadian credit card on file). I think it’s Apple account location, maybe with some sort of system to allow people to switch countries but not allowing that to bypass restrictions? Or: that’s why a EU citizen can’t just switch their account location to unlock features?
I have a European account, when I lived in Japan I could use all the features (iPhone Mirroring, etc.) that are blocked in the EU. When back in the EU I can still use them for about 2 weeks before they get blocked again.