Lower than the tank ....
Or at least lower than the normal top surface of the fuel. This will make it easier to refill the system and purge air from the filter housing, injectors, etc. Ideallyt, you want the filter to be at the lower portion of the delivery system for two reasons: 1. water will gravimetrically settle in the filter bowl. You want the filter housing to be the LOWEST in the system bacause thats where you will drain the water out of the lines. If the housing is located not at the bottom of the piping, then you wont have any means of water removal. 2. its easier to refill the system by the 'siphon' effect.