Yes, foreigners have a obligation pay taxes when working in China according to Chinese law. The most prudent way is to have your employer withold the tax and handle matters for you. They will do this unless your employer is "not playing by the tax rules." In that case, then you can hire a local Chinese CPA to file the forms for you and hopefully you have saved some money because for sure you will have a tax bill.

If you happen to be an american working abroad, you should keep in mind that Uncle Sam owns you no matter where you are working. At least he feels so. This means you are obligated to file a tax return in the US also whether or not you owe any taxes. If you can show you have been paying to another country and enough tax, then normally their is not any double taxation. Also their are tax treaties between the countries, but one should check the details if it exist between China and the US. (Somehow I doubt it.)

Practically speaking, it is difficult to file the form in the US each year because you need to send away for the forms, wait them, mail back, etc. But if you know you can prove you have been paying the tax elswhere, it is not a big problem if you stop filing a tax return in the USA. What happens on your return is you will then have to file for a back years and if you owe no taxes (because you have been paying enough to another country) that is all you have to do. Of course, if you owe back taxes you will have to pay those and their will also be an interest charge to go with it as if you were borrowing this money the entire time because it is Uncle Sams and you did not pay him his due.

Be aware now that China just enacted a new pension law where foreigners have to now start paying a retirement pension each month. My feeling is we will never see that money again, but China has said the foreigner will get the benefits and when leaving China get some kind of refund. But the trouble is, the tax has been levied and in force now, but China government really hasn't come out with all the details on how the foreigner will get his money back, what benefits and how much he will get. In other words, China is now making foreigners pay the retirement and even though we need to pay it now, they ar enot able to say to us what benefits we get or how we get the money back when leaving China. They have promised to announce something, but nothing official yet, even though they now withhold the money. Taking the money but not saying how to get it back yet.

Previously I stated find a local CPA, but in your case I think you can just get any regular accountant or Chinese person that speaks English and has to file taxes to help you if your talking about taxes for the year 2011. This will save you money. Similiar to the generic H&R Block in USA. They know sh*t for taxes, yet fill out millions of returns for people. The CPA is better able to help you plan in the future how to reduce your tax. (2012 and beyond)

The key is know the tax laws (CPA will, but make sure he is a tax specialists) The key is tax avoidance, which is legal. Not tax evasion which is illegal and u can sit your *ss in jail for this one.

Btw, anyone who has insomnia and unable to sleep at night, I highly recommend picking up the US Federal Tax law book. You should be asleep before you reach page two.