Country is taking on island surrounded by fish (7)
I believe the answer is:
tunisia
'country' is the definition.
(Tunisia is an example)
'is taking on island surrounded by fish' is the wordplay.
'taking on' is a charade indicator (letters next to each other).
'island' becomes 'i'.
'surrounded by' means one lot of letters goes inside another.
'fish' becomes 'tuna' (tuna is a kind of fish**).
'is'+'i'='isi'
'isi' inserted into 'tuna' is 'TUNISIA'.
(Other definitions for tunisia that I've seen before include "Country which contains the site of Carthage" , "As Inuit visits there in North Africa" , "country-style" , "Land" , "Country between Algeria/Libya" .)