It's declared outside of the dynamic SQL string. If you want the variable accessible inside the dynamic SQL, you either have to declare it within the dynamic SQL string, or use sp_executesql and declare it as a parameter

This will throw an error - variable not declared

DECLARE @sql varchar(max), @SomeVar int

SET @SomeVar = 0

SET @sql = 'SELECT @SomeVar'

EXEC (@sql) -- error @somevar not declared

This will work fine.

DECLARE @sql varchar(max)

SET @SQL = 'DECLARE @SomeVar int'

SET @SQL = @SQL + ' SET @SomeVar = 0 '

SET @SQL = @SQL + ' SELECT @SomeVar'

EXEC (@sql)

This will also work fine

DECLARE @sql nvarchar(max), @SomeVar int

SET @SomeVar = 0

SET @sql = 'SELECT @SomeOtherVar'

exec sp_executesql @sql, N'@SomeOtherVar int', @SomeOtherVar = @SomeVar