A taxonomy is a list of options from which a user chooses one or more as an answer. It is mostly used for information of type 'List'.
For the information 'Country of Residence', the taxonomy 'Countries' can be used as the list of options to choose an answer from. The same taxonomy can additionally be used for the information 'Nationality'. It generally makes sense to define values in taxonomies if they are or can be used for multiple pieces of information.